AMERICAN CLEAN RESOURCES GROUP, INC.
10-Ks and 10-Qs
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U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
Year Ended December 31, 2009
Commission
File Number: 000-14319
STANDARD GOLD,
INC.
(Exact
Name of Small Business Issuer as Specified in its Charter)
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COLORADO
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84-0991764
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(State
or Other Jurisdiction of
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(I.R.S.
Employer Identification Number)
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Incorporation
or Organization)
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900 IDS CENTER, 80 SOUTH
EIGHTH STREET, MINNEAPOLIS, MINNESOTA 55402-8773
(Address
of Principal Executive Offices)
Issuer’s
telephone number including area code: (612) 349-5277
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.001 PAR
VALUE
Title of
Class
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
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No
x
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. Yes
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No
x
Indicate
by check mark whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes
x
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) during the preceding 12 months (or such shorter period that the
registrant was required to submit and post such files). Yes
¨
No
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K
¨
.
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
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Large
accelerated filer
o
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Accelerated
filer
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Non-accelerated
filer
o
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Smaller
reporting company
x
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Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.) Yes
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No
x
The
Registrant’s revenues for its most recent fiscal year: None.
The
aggregate market value of the Registrant’s common stock held by non-affiliates
as of March 24, 2010 was approximately $886,000, based on the closing sale price
as reported on the OTCBB for the Company’s common stock on March 24,
2010.
On March
24, 2010, there were 22,890,649 shares of common stock issued and outstanding,
which is the Registrant’s only class of voting stock.
Documents
Incorporated by Reference: None.
STANDARD
GOLD, INC.
Annual
Report on Form 10-K
For the
Year Ended December 31, 2009
Table of
Contents
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Page
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PART
I
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Item
1.
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Description
of Business
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4
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Item
1A.
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Risk
Factors
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8
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Item
2.
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Description
of Properties
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13
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Item
3.
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Legal
Proceedings
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13
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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13
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PART
II
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Item
5.
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Market
for Registrant’s Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities
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14
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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15
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Item
8.
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Financial
Statements and Supplementary Data
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18
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Item
9.
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Changes
and Disagreements with Accountants on Accounting and Financial
Disclosure
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18
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Item
9A(T).
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Controls
and Procedures
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19
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Item
9B.
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Other
Information
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20
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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21
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Item
11.
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Executive
Compensation
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22
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters
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23
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Item
13.
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Certain
Relationships, Related Transactions and Director
Independence
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Item
14.
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Principal
Accountant Fees and Services
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26
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Item
15.
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Exhibits
and Financial Statement Schedules
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26
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Signatures
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28
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2
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K contains both historical statements and statements
that are forward-looking in nature. Historical statements are based on events
that have already happened. Certain of these historical events provide some
basis to our management, with which assumptions are made relating to events that
are reasonably expected to happen in the future. Management also relies on
information and assumptions provided by certain third party operators of our
projects as well as assumptions made with the information currently available to
predict future events. These future event predictions, or forward-looking
statements, include (but are not limited to) statements related to the
uncertainty of the quantity or quality of probable ore reserves, the
fluctuations in the market price of such reserves, general trends in our
operations or financial results, plans, expectations, estimates and beliefs. You
can identify forward-looking statements by terminology such as “may,” “could,”
“should,” “anticipate,” “believe,” “estimate,” “continue,” “expect,” “intend,”
“plan,” “predict,” “potential” and similar expressions and their variants. These
forward-looking statements reflect our judgment as of the date of this Annual
Report with respect to future events, the outcome of which is subject to risks,
which may have a significant impact on our business, operating results and/or
financial condition. Readers are cautioned that these forward-looking statements
are inherently uncertain. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results or
outcomes may vary materially from those described herein. We undertake no
obligation to update forward-looking statements. The risks identified in PART I
Item 1A, among others, may impact forward-looking statements contained in this
Annual Report.
3
OVERVIEW
Standard
Gold, Inc. (with its subsidiaries “we,” “us,” “our,” “Standard Gold” or the
“Company”) is a minerals exploration and development company based in
Minneapolis, Minnesota. As of December 31, 2009, we own, through our
wholly owned subsidiary Hunter Bates Mining Corporation, a Minnesota corporation
(“Hunter Bates”), a prior producing gold mine in Colorado called the
Bates-Hunter Mine. The following is a summary of the Bates-Hunter Mine
project.
On June
12, 2008, Hunter Bates completed the acquisition of the Bates-Hunter Mine, a
prior producing gold mine located in Central City, Colorado, which included real
property, mining claims, permits and equipment. Wits Basin Precious
Minerals Inc., a Minnesota corporation and public reporting company quoted on
the Over-the-Counter Bulletin Board under the symbol “WITM” (“Wits Basin”)
transferred its right to purchase the Bates-Hunter Mine to Hunter Bates (a
wholly owned subsidiary of Wits Basin until September 29, 2009), pursuant to a
formal Asset Purchase Agreement dated September 20, 2006. The purchase was
financed through a limited recourse promissory note of Hunter Bates payable to
Mr. George Otten (on behalf of all of the Sellers) in the principal amount of
Cdn$6,750,000 (the “Otten Note”) and Wits Basin issued 3,620,000 shares of its
common stock. Through August 2008, a total of 12,039 feet of surface
drilling has been accomplished on the Bates-Hunter Mine properties, which
provided detailed data, which has been added to our existing 3-D map of the
region. With the surface drilling program completed in August 2008, no further
exploration activities will be conducted at the Bates-Hunter Mine until such
time as we have sufficient funds to resume exploration activities.
As of
December 31, 2009, we possess only a few pieces of equipment and we employ
insufficient numbers of personnel necessary to actually explore and/or mine for
minerals and therefore, we are substantially dependent on the third party
contractors we engage to perform such operations. As of the date of this Annual
Report, we do not claim to have any mineral reserves at the Bates-Hunter
Mine.
All
dollar amounts expressed in this Annual Report are in US Dollars (“$”), unless
specifically noted as Canadian Dollars (“Cdn$”).
OUR
HISTORY
Standard
Gold (formally known as Princeton Acquisitions, Inc.) was incorporated in the
State of Colorado on July 10, 1985, as a blind pool or blank check company. From
its incorporation until September 29, 2009, its strategy was to complete a
merger with, or acquisition of, a private company, partnership or sole
proprietorship without any particular industry or geographical location.
Princeton Acquisitions, Inc. had a June 30, fiscal year end. On September 11,
2009, Standard Gold entered into a share exchange agreement with Hunter Bates
and certain of its shareholders, in which Hunter Bates’ shareholders would
exchange all of their capital securities into similar capital securities of
Standard Gold. The share exchange was consummated on September 29, 2009 (the
“Share Exchange”).
Accordingly,
the Share Exchange represented a change in control and Hunter Bates became a
wholly owned subsidiary of Standard Gold. For accounting purposes, the Share
Exchange has been accounted for as a reverse acquisition with Hunter Bates as
the accounting acquirer (legal acquiree) and Standard Gold as the accounting
acquiree (legal acquirer). Upon effectiveness of the Share Exchange,
Standard Gold adopted the business model of Hunter Bates and as such has become
a stand-alone minerals exploration and development company with a focus on U.S.
gold projects. Upon completion of the Share Exchange, Wits Basin Precious
Minerals Inc., a Minnesota corporation (“Wits Basin”), which held a majority of
the interest of Hunter Bates before the Share Exchange, held approximately 95%
of the issued and outstanding capital stock of Standard Gold. Hunter Bates had a
fiscal year end of December 31, as such Standard Gold changed their fiscal year
end from June 30 to December 31.
4
For
purposes of this Annual Report, unless otherwise provided, references to “we,”
“us,” “our Company,” “our,” or the “Company” refer to the consolidated entity of
Standard Gold, Inc. and its wholly owned subsidiary Hunter Bates Mining
Corporation. Since our assets and operations are now conducted through
Hunter Bates Mining Corporation, the discussions of our business and the risks
we face and our historic economic performance relate primarily to Hunter
Bates. Specific references to Hunter Bates Mining Corporation will
reference “Hunter Bates” and those relating to Standard Gold, Inc. will
reference “Standard Gold.”
OUR EXPLORATION PROJECT:
BATES-HUNTER MINE
Overview
On
January 21, 2005, Wits Basin acquired an option to purchase all of the
outstanding capital stock of the Hunter Gold Mining Corp. (a corporation
incorporated under the laws of British Columbia, Canada) who held all of the
assets of the Bates-Hunter Mine. On July 21, 2006, Wits Basin executed a
stock purchase agreement to supersede the option agreement. On
September 20, 2006, Wits Basin executed an Asset Purchase Agreement to
purchase the Bates-Hunter Mine on different economic terms than previously
agreed upon in the stock purchase agreement or option. On June 12, 2008, Wits
Basin entered into a fifth amendment to the Asset Purchase Agreement to, among
other changes, reflect its assignment of its rights in the Asset Purchase
Agreement to Hunter Bates and thereby allowing Hunter Bates to complete the
acquisition of the Bates-Hunter Mine. The acquisition of the assets of the
Bates-Hunter Mine was completed on June 12, 2008.
The
Bates-Hunter Mine is located about 35 miles west of Denver, Colorado and is
located within the city limits of Central City. The Central City mining district
lies on the east slope of the Front Range where elevations range from 8,000 feet
in the east to 9,750 feet in the west. Local topography consists of gently
rolling hills with local relief of as much as 1,000 feet.
The mine
site is located in the middle of a residential district within the city limits
of Central City and is generally zoned for mining or industrial use. The
Bates-Hunter Mine shaft is equipped with a two-compartment, 85 foot tall steel
headframe and a single drum hoist using a one inch diameter rope to hoist a two
ton skip from approximately 1,000 feet deep. A water treatment plant has
been constructed adjacent to the mine headframe. This is a significant asset
given the mine site location and environmental concerns.
5
Geology
The
regional geology of the Central City district is not “simple” but the economic
geology is classically simple. The Precambrian granites and gniesses in the area
were intensely fractured during a faulting event resulting in the emplacement of
many closely spaced and roughly parallel veins. The veins are the result of
fracture filling by fluids that impregnated a portion of the surrounding
gneisses and granites with lower grade gold concentrations “milling ore” and
usually leaving a high grade “pay streak” of high grade gold sulphides within a
quartz vein in the fracture. There are two veins systems present, one striking
east-west and the other striking sub parallel to the more predominant east-west
set. These veins hosted almost all of the gold in the camp. The veins vary from
2 to 20 feet in width and dip nearly vertical. Where two veins intersect, the
intersection usually widens considerably and the grade also increases, sometimes
to bonanza grades. In the Timmins camp, this same feature was described as a
“blow out” and resulted in similar grade and thickness increases. The Bates vein
in the area of the Bates-Hunter Mine has been reported to have both sets of
veins and extremely rich “ore” where the two veins intersected. These veins
persist to depth and consist of gold rich sulphides that include some
significant base metal credits for copper and silver.
Previous Exploration
Efforts
The
following is based on the information from a report titled “Exploration and
Development Plan for the Bates-Hunter Project,” prepared by Glenn R. O’Gorman,
P. Eng., dated March 1, 2004.
Lode gold
was first discovered in Colorado in 1859 by John H. Gregory. The first
veins discovered were the Gregory and the Bates. This discovery started a gold
rush into the area with thousands of people trying to stake their claims.
The Central City mining district is the most important mining district in the
Front Range mineral belt. Since 1859, more than 4,000,000 ounces of gold
have been mined from this district. Over 25% of this production has come from
the area immediately surrounding the Bates-Hunter Project. Although the
Bates vein was one of the richest and most productive in the early history of
the area, it was never consolidated and mined to any great depth.
The
majority of production on the claims occurred during the period prior to
1900. Technology at that time was very primitive in comparison to today's
standards. Hand steel and hand tramming was the technology of the day. The above
limitations coupled with limited claim sizes generally restricted mining to the
top few hundred feet on any one claim.
During
the early 1900’s cyanidation and flotation recovery technologies were developed
along with better hoists and compressed air operated drills. Consolidation of
land was a problem. Production rates were still limited due to the lack of
mechanized mucking and tramming equipment. Issues that were major obstacles
prior to the 1900’s and 1930’s are easily overcome with modern
technology.
Colorado
legislated their own peculiar mining problem by limiting claim sizes to 500 feet
in length by 50 feet wide and incorporated the Apex Law into the system as
well. A typical claim was 100 to 200 feet long in the early days. This
resulted in making it extremely difficult for any one owner to consolidate a
large group of claims and benefit from economies of scale. The W.W.II Production
Limiting Order # 208 effectively shut down gold mining in the area and
throughout Colorado and the United States in mid 1942.
Historical
production records indicate that at least 350,000 ounces of gold were recovered
from about half of the Bates Vein alone to shallow depths averaging about 500
feet below surface.
GSR
Goldsearch Resources drilled two reverse circulation holes on the property in
1990. The first hole did not intersect the Bates Vein. However, the second
drilled beneath the Bates-Hunter shaft bottom intersected the Bates Vein at
about 900 feet below surface. The drill cuttings graded 0.48 oz. Au/ton over 10
feet. This drillhole intersected three additional veins as well with significant
gold assays.
6
Through
August 2008, over 12,000 feet of drilling was accomplished, which provided
detailed data, which has been added to our existing 3-D map of the region.
Several narrow intervals of potential ore grade gold values were intersected,
which require further exploration efforts to delineate any
valuation.
Our Exploration
Plans
With what
we have compiled so far, including surface drill results, underground and
surface geologic mapping and sampling, assay testing, detailed surface surveys
of mineral claims and outcropping veins, research of structural geology of the
vein systems and computer modeling with three-dimensional software, we are
continuing to define what possible next steps can be implemented and what those
steps will require in funding. No further exploration activities will be
conducted at the Bates-Hunter Mine until such time as we have sufficient funds.
We have taken measures to secure the property while it remains
inactive.
INDUSTRY
BACKGROUND
The
exploration for and development of mineral deposits involves significant capital
requirements. While the discovery of an ore body may result in substantial
rewards, few properties are ultimately developed into producing mines.
Some of the factors involved in determining whether a mineral exploration
project will be successful include, without limitation:
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competition;
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financing
costs;
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availability
of capital;
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proximity
to infrastructure;
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the
particular attributes of the deposit, such as its size and grade;
and
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governmental
regulations, particularly regulations relating to prices, taxes,
royalties, infrastructure, land use, environmental protection matters,
green house gas legislation, property title, rights and options of use,
and license and permitting
obligations.
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All of
which leads to a speculative endeavor of very high risk. Even with the formation
of new theories and new methods of analysis, unless the minerals are simply
lying exposed on the surface of the ground, exploration will continue to be a
“hit or miss” process.
PRODUCTS AND
SERVICES
As of
December 31, 2009, we only own the past producing gold mine in Colorado
(Bates-Hunter Mine).
EXPLORATION AND DEVELOPMENT
EXPENSES
If we
acquire a project that has no revenue, exploration expenses will be charged to
expense as incurred.
EMPLOYEES
As of
December 31, 2009, we employ two individuals through Wits Basin – our chief
executive officer and our chief financial officer, which are being shared by
Wits Basin. Gregory Gold Producers (a wholly owned subsidiary of Hunter Bates)
employs one mine related employee at the Bates-Hunter Mine. None of our
employees are represented by a labor union and we consider our employee
relations to be good.
7
FINANCIAL INFORMATION IN
INDUSTRY SEGMENTS
During
the year ended December 31, 2009, our operations included one reportable
segment: that of minerals exploration.
AVAILABLE
INFORMATION
We make
available free of charge, through our Internet web site at
www.standardgoldmining.com, our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after we electronically file such material, or furnish it
to the Securities and Exchange Commission (“SEC”). You can also request a
free copy of the above filings by writing or calling us at:
Standard
Gold, Inc.
Attention:
Mark D. Dacko, Secretary
900 IDS
Center, 80 South 8
th
Street
Minneapolis,
Minnesota 55402-8773
(612)
349-5277
RISKS
RELATING TO OUR CAPITAL STOCK
INVESTORS
MAY BE UNABLE TO ACCURATELY VALUE OUR COMMON STOCK.
Investors
often value companies based on the stock prices and results of operations of
other comparable companies. Currently, we do not believe another public gold
exploration company exists that is directly comparable to our size and scale.
Prospective investors, therefore, have limited historical information about the
property held by us upon which to base an evaluation of our performance and
prospects and an investment in our common stock. As such, investors may find it
difficult to accurately value our common stock.
BECAUSE
OF BECOMING PUBLIC BY MEANS OF A REVERSE ACQUISITION, WE MAY NOT BE ABLE TO
ATTRACT THE ATTENTION OF MAJOR BROKERAGE FIRMS.
Additional
risks may exist since we became public through a “reverse acquisition.”
Security analysts of major brokerage firms may not provide coverage of the
Company. No assurance can be given that brokerage firms will want to
conduct any secondary offerings on behalf of the Company in the
future.
WE
DO NOT INTEND TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE.
We have
never declared or paid any dividends on our common stock. We intend to retain
all of our earnings, if any, for the foreseeable future to finance the operation
and expansion of our business, and we do not anticipate paying any cash
dividends in the future. Our board of directors retains the discretion to change
this policy.
8
RISKS
RELATING TO OUR FINANCIAL CONDITION
WE
CURRENTLY DO NOT HAVE ENOUGH CASH TO FUND OPERATIONS, DEBT REDUCTION OR
POTENTIAL ACQUISITIONS DURING 2010.
We have
very limited funds, and such funds are not adequate to develop our current
business plan, or even to satisfy our existing working capital requirements. As
of March 24, 2010, we had only approximately $141,000 of cash and cash
equivalents and with an expected cash expenditure of approximately $750,000 in
debt that will become due during 2010 (assuming some or all of such debt is not
converted into equity prior to such date) we will be required to raise
additional funds to effectuate our current business plan for exploration of the
Bates-Hunter Mine and to satisfy our working capital requirements. We have no
significant sources of currently available funds to engage in additional
exploration and development. Without significant additional capital, we will be
unable to fund exploration of our current property interests or acquire
interests in other mineral exploration projects that may become available. Our
ultimate success will depend on our ability to raise additional capital. There
is no assurance that funds will be available from any source, or if available,
that they can be obtained on terms acceptable to us.
We
continue to seek additional opportunities relating to our mining operations, and
our ability to seek out such opportunities, perform due diligence, and, if
successful, acquire such properties or opportunities requires additional
capital. We expect to raise such additional capital by selling shares of our
capital stock or by borrowing money. Additionally, such additional capital may
not be available to us at acceptable terms or at all. Further, if we increase
our capitalization and sell additional shares of our capital stock, your
ownership position in our Company will be subject to dilution. In the
event that we are unable to obtain additional capital, we may be forced to cease
our search for additional business opportunities, reduce our operating
expenditures or to cease operations altogether.
WE
ARE A DEVELOPMENT- AND EXPLORATION-STAGE COMPANY WITH LITTLE HISTORY OF
OPERATIONS AND WE EXPECT TO INCUR LOSSES FOR THE FORESEEABLE
FUTURE.
We are a
development- and exploration-stage company, and have yet to commence active
operations. As of December 31, 2009, we have incurred an aggregate net loss of
$6,700,800 since our incorporation. We have no prior operating history from
which to evaluate our success, or our likelihood of success in operating our
business, generating any revenues, or achieving profitability. These operations
provide a limited basis for you to assess our ability to commercialize our
product candidates and the advisability of investing in our securities. We have
generated no revenue to date and there can be no assurance that our plans for
exploring the Bates-Hunter Mine, and possibly producing minerals, will be
successful, or that we will ever attain significant sales or
profitability. We anticipate we will incur development- and
exploration-stage losses until our exploration efforts are completed. As a
development- and exploration-stage company, we are subject to unforeseen costs,
expenses, problems and difficulties inherent in new business
ventures.
OUR
INDEPENDENT AUDITORS HAVE SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A
GOING CONCERN.
We have
had net losses for each of the years ended December 31, 2009 and 2008, and we
have an accumulated deficit as of December 31, 2009. Since the financial
statements for each of these periods were prepared assuming that we would
continue as a going concern, in the view of our independent auditors, these
conditions raise substantial doubt about our ability to continue as a going
concern. Furthermore, since we do not expect to generate any significant
revenues from operations for the foreseeable future, our ability to continue as
a going concern depends, in large part, on our ability to raise additional
capital through equity or debt financing transactions. If we are unable to raise
additional capital, we may be forced to discontinue our
business.
9
OUR
MAJOR DEBT AGREEMENT REQUIRES PAYMENTS IN CANADIAN DOLLARS AND IS SUBJECT TO
EXCHANGE RATE FLUCTUATIONS.
Currently,
the Bates-Hunter Mine acquisition agreement requires payments in Canadian
Dollars and it is possible that we could enter into other agreements requiring
different world currency payments. Fluctuations in exchange rates between the
U.S. Dollar and other currencies, could have a significant affect on the actual
amount of payments and potentially may be in excess of the amounts we have
budgeted for. We do not enter into hedging schemes to offset potential currency
fluctuations.
RISKS
RELATED TO THE COMPANY
WE
HAVE VERY LIMITED ASSETS IN OPERATION.
We are an
exploration stage company and only own the past producing gold project of the
Bates-Hunter Mine in Colorado, which we have financed through a limited recourse
promissory note (as of December 31, 2009, the outstanding principal balance is
Cdn$6,500,000 or approximately $6,189,768 US). Currently, we are only performing
maintenance activities at this property and we do not anticipate having any
revenues from this property for the foreseeable future. Furthermore, this
property may never produce any significant mineral deposits.
WE
HAVE PROVIDED GUARANTEES AND ENCUMBERED OUR ASSETS AS SECURITY FOR CERTAIN OF
WITS BASIN’S OBLIGATIONS.
Prior to
the completion of the Share Exchange, Hunter Bates was a direct subsidiary of
Wits Basin and as such entered into guarantees for debt obligations of Wits
Basin under certain of their loan agreements with third-party lenders. Hunter
Bates also entered into security agreements with certain of these lenders and
its assets have been pledged to secure certain of these obligations of Wits
Basin. In the event Wits Basin is unable to satisfy its obligations under these
third-party loan arrangements, we may be required by such third-party lenders to
satisfy Wits Basin’s obligations, and such lenders may be able to foreclose on
our assets. Additionally, certain of Wits Basin’s lenders hold a pledge of a
significant number of Standard Gold shares held by Wits Basin, and it is
possible a majority interest of our equity could be seized by a
third-party. If any of these events occur, it could be harmful to our
business. See Item 13 — Certain Relationships, Related Transactions and Director
Independence for more information.
WITS
BASIN WILL BE ABLE TO EXERT SIGNIFICANT CONTROL OVER OUR COMPANY.
Wits
Basin has in the past and will continue to be able to exert significant control
over our Company. As of the date of this Annual Report, Wits Basin holds
approximately 94% of our outstanding common stock. All of the members of
our board of directors and our officers are affiliated with Wits Basin.
Accordingly, Wits Basin will have the ability to exert substantial influence
over the election of our directors and all other matters submitted to our
shareholders.
Wits
Basin, as our majority shareholder, is further permitted pursuant to our charter
documents to take shareholder action in writing in lieu of a formal shareholder
meeting.
As Wits
Basin also engages in the industry of mining for precious metals, there may
exist conflicts of interest between our Company and Wits
Basin
.
OUR
MANAGEMENT TEAM MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS
STRATEGIES.
If our
management team is unable to execute on our business strategies, then our
development would be materially and adversely affected. In addition, we may
encounter difficulties in effectively managing the budgeting, forecasting and
other process control issues presented by any future growth. We may seek to
augment or replace members of our management team or we may lose key members of
our management team, and we may not be able to attract new management talent
with sufficient skill and experience.
10
OUR
SUCCESS IN THE FUTURE MAY DEPEND ON OUR ABILITY TO ESTABLISH AND MAINTAIN
STRATEGIC ALLIANCES, AND ANY FAILURE ON OUR PART TO ESTABLISH AND MAINTAIN SUCH
RELATIONSHIPS WOULD ADVERSELY AFFECT OUR MARKET PENETRATION AND REVENUE
GROWTH.
We may be
required to establish strategic relationships with third parties in the mining
industry. Our ability to establish strategic relationships will depend on a
number of factors, many of which are outside our control, such as the
suitability of property relative to our competitors. We can provide no assurance
that we will be able to establish other strategic relationships in the
future.
In
addition, any strategic alliances that we establish, will subject us to a number
of risks, including risks associated with sharing proprietary information, loss
of control of operations that are material to developed business and
profit-sharing arrangements. Moreover, strategic alliances may be expensive to
implement and subject us to the risk that the third party will not perform its
obligations under the relationship, which may subject us to losses over which we
have no control or expensive termination arrangements. As a result, even if our
strategic alliances with third parties are successful, our business may be
adversely affected by a number of factors that are outside of our
control.
RISKS
RELATING TO OUR BUSINESS
WE
WILL REQUIRE ADDITIONAL FINANCING TO CONTINUE TO FUND OUR CURRENT EXPLORATION
PROJECT INTERESTS OR TO ACQUIRE INTERESTS IN OTHER EXPLORATION
PROJECTS.
Substantial
additional financing will be needed in order to fund beyond the current
maintenance programs underway or to potentially complete other acquisitions or
joint ventures with other business models. Our means of acquiring investment
capital is limited to private equity and debt transactions. We have no
significant sources of currently available funds to engage in additional
exploration and development. Without significant additional capital, we
will be unable to fund exploration of our current property interests or acquire
interests in other mineral exploration projects that may become available. See
“—Risks Relating to Our Financial Condition – We Currently Do Not Have Enough
Cash to Fund Operations During 2010.”
OUR
PERFORMANCE MAY BE SUBJECT TO FLUCTUATIONS IN MINERAL PRICES.
The
profitability of our exploration project could be significantly affected by
changes in the market price of minerals. Demand for minerals can be influenced
by economic conditions and attractiveness as an investment vehicle. Other
factors include the level of interest rates, exchange rates and inflation. The
aggregate effect of these factors is impossible to predict with
accuracy.
In
particular, mine production and the willingness of third parties such as central
banks to sell or lease gold affects the supply of gold. Worldwide production
levels also affect mineral prices. In addition, the price of gold, silver and
other precious minerals have on occasion been subject to very rapid short-term
changes due to speculative activities. Fluctuations in gold prices may adversely
affect the value of any discoveries made at the Bates-Hunter
Mine.
11
MINERAL
EXPLORATION IS EXTREMELY COMPETITIVE.
There is
a limited supply of desirable mineral properties available for claim staking,
lease or other acquisition in the areas where we contemplate participating in
exploration activities. We compete with numerous other companies and
individuals, including competitors with greater financial, technical and other
resources than we possess, in the search for and the acquisition of attractive
mineral properties. Our ability to acquire properties in the future will depend
not only on our ability to develop our present property, but also on our ability
to select and acquire suitable producing properties or prospects for future
mineral exploration. We may not be able to compete successfully with our
competitors in acquiring such properties or prospects.
THE
NATURE OF MINERAL EXPLORATION IS INHERENTLY RISKY.
The
exploration for and development of mineral deposits involves significant
financial risks, which even experience and knowledge may not eliminate,
regardless of the amount of careful evaluation applied to the process. Very few
properties are ultimately developed into producing mines. Whether a gold mineral
deposit will become commercially viable depends on a number of factors,
including:
|
|
·
|
financing
costs;
|
|
|
·
|
proximity
to infrastructure;
|
|
|
·
|
the
particular attributes of the deposit, such as its size and grade;
and
|
|
|
·
|
governmental
regulations, including regulations relating to prices, taxes, royalties,
infrastructure and land use.
|
The
outcome of any of these factors may prevent us from receiving an adequate return
on invested capital.
OUR
EXPLORATION OPERATIONS ARE SUBJECT TO ENVIRONMENTAL REGULATIONS, WHICH COULD
RESULT IN THE INCURRENCE OF ADDITIONAL COSTS AND OPERATIONAL
DELAYS.
All
phases of our operations are subject to current environmental protection
regulation. There is no assurance that future changes in environmental
regulation, such as greenhouse gas emissions, carbon footprint and the like,
will not adversely affect our project. We will be subject to environmental
protection regulations with respect to our property in Colorado, under
applicable federal and state laws and regulations.
U.S.
FEDERAL LAWS
Under the
U.S. Resource Conservation and Recovery Act, mining companies may incur costs
for generating, transporting, treating, storing, or disposing of hazardous
waste, as well as for closure and post-closure maintenance once they have
completed mining activities on a property. Our mining operations may produce air
emissions, including fugitive dust and other air pollutants, from stationary
equipment, storage facilities, and the use of mobile sources such as trucks and
heavy construction equipment which are subject to review, monitoring and/or
control requirements under the Federal Clean Air Act and state air quality laws.
Permitting rules may impose limitations on our production levels or create
additional capital expenditures in order to comply with the rules.
The U.S.
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended (CERCLA) imposes strict joint and several liability on parties
associated with releases or threats of releases of hazardous substances. The
groups who could be found liable include, among others, the current owners and
operators of facilities which release hazardous substances into the environment
and past owners and operators of properties who owned such properties at the
time the disposal of the hazardous substances occurred. This liability could
include the cost of removal or remediation of the release and damages for injury
to the surrounding property. We cannot predict the potential for future CERCLA
liability with respect to our property.
12
THE
GLOBAL FINANCIAL CRISIS MAY HAVE IMPACTS ON OUR BUSINESS AND FINANCIAL CONDITION
THAT WE CURRENTLY CANNOT PREDICT.
The
continued credit crisis and related instability in the global financial system
has had, and may continue to have, an impact on our business and our financial
condition. We may face significant challenges if conditions in the financial
markets do not improve. Our ability to access the capital markets may be
severely restricted at a time when we would like, or need, to access such
markets, which could have an impact on our flexibility to react to changing
economic and business conditions. The credit crisis could have an impact on any
potential lenders or on our customers, causing them to fail to meet their
obligations to us.
On June
12, 2008, Hunter Bates completed the acquisition of the Bates-Hunter Mine
located in Central City, Colorado, which includes a water treatment plant,
headframe, buildings, miscellaneous equipment and land, financed through a
limited recourse promissory note in the principal amount of Cdn$6,750,000. As of
December 31, 2009, we do not claim to have any mineral reserves at the
Bates-Hunter Mine and further development is contingent upon available
funds.
We
currently share office space with Wits Basin at 900 IDS Center, 80 South 8th
Street, Minneapolis, Minnesota 55402-8773.
None.
On
December 7, 2009, the Company held a Special Meeting of Shareholders. The only
matter presented to the shareholders for a vote at the Special Meeting was to
consider the approval of an amendment and restatement of the Company’s Articles
of Incorporation, whereby the current Articles of Incorporation be amended and
restated in its entirety to reflect the following changes to the Articles: (i)
to change the name of the Company from “Princeton Acquisitions, Inc.” to
“Standard Gold, Inc.,” (ii) to permit shareholder action in writing, in lieu of
a meeting, by shareholders holding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all of the shares entitled to vote were present and voted,
(iii) to remove certain provisions from the Articles that are not required under
the Colorado Business Corporation Act (the “CBCA”), and (iv) to edit certain
references from the Colorado Corporation Code to the CBCA. The results of
the vote were as follows (with no broker non-votes):
|
Shares Voted For
|
Against
|
Abstain
|
|||
|
20,423,544
|
—
|
—
|
For more
details as to the Special Meeting and the matter considered thereat, please see
the Definitive Information Statement on Schedule 14C filed with the Securities
and Exchange Commission on November 16, 2009.
13
|
ITEM
5.
|
MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY
SECURITIES
|
PRICE RANGE OF COMMON
STOCK
Our
common stock is quoted on the OTCBB under the symbol “SDGR.” Prior to January
11, 2010, our common stock was quoted under the symbol “PRAQ.” As of March 24,
2010, the last closing bid price of our common stock as reported by OTCBB was
$1.01 per share. The following table sets forth for the periods indicating the
range of high and low bid prices of our common stock:
|
Period
|
High
|
Low
|
||||||
|
Quarter
Ended March 31, 2008
|
$ | 2.25 | $ | 2.25 | ||||
|
Quarter
Ended June 30, 2008
|
$ | 1.10 | $ | 1.00 | ||||
|
Quarter
Ended September 30, 2008
|
$ | 1.10 | $ | 0.30 | ||||
|
Quarter
Ended December 31, 2008
|
$ | 0.30 | $ | 0.30 | ||||
|
Quarter
Ended March 31, 2009
|
$ | 0.30 | $ | 0.15 | ||||
|
Quarter
Ended June 30, 2009
|
$ | 0.15 | $ | 0.15 | ||||
|
Quarter
Ended September 30, 2009
|
$ | 1.00 | $ | 0.10 | ||||
|
Quarter
Ended December 31, 2009
|
$ | 3.00 | $ | 0.05 | ||||
The
quotations from the OTCBB above reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not reflect actual
transactions.
RECORD
HOLDERS
As of
March 24, 2010, there were approximately 130 record holders of our common stock,
excluding shareholders holding securities in “street name.” Based on securities
position listings, we believe that there are approximately 35 beneficial holders
of our common stock in “street name.”
DIVIDENDS
We have
never paid cash dividends on our common stock and have no present intention of
doing so in the foreseeable future. Rather, we intend to retain all future
earnings to provide for the growth of our Company. Payment of cash dividends in
the future, if any, will depend, among other things, upon our future earnings,
requirements for capital improvements and financial condition.
RECENT SALES OF UNREGISTERED
SECURITIES
In
addition to the sales of unregistered securities that we reported in Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K during fiscal year ended
2009, we made the following sales of unregistered securities during the quarter
ended December 31, 2009.
During
the fourth quarter of 2009, we issued 1,630,000 shares of our unregistered
common stock through a private placement offering with Wits Basin. The private
placement offering was a unit transaction at $0.50 per unit, each unit
consisting of one share of our common stock, par value $0.001 per share, and one
five-year warrant to purchase a share of common stock at an exercise price of
$1.00 per share, resulting in net proceeds of $815,000.
14
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The
following discussion should be read in conjunction with the Financial Statements
of the Company and notes thereto included elsewhere in this Annual Report.
See “—Financial Statements.”
Readers
are cautioned that the following discussion contains certain forward-looking
statements and should be read in conjunction with the “Special Note Regarding
Forward-Looking Statements” appearing at the beginning of this Annual
Report.
Effective
September 29, 2009, Standard Gold, Inc. (f/k/a Princeton Acquisitions, Inc.)
became a minerals exploration and development company pursuant to the Share
Exchange transaction with Hunter Bates. The consummation of the Share Exchange
represented a change in control and Hunter Bates became a wholly owned
subsidiary of Standard Gold. For accounting purposes, the Share Exchange has
been accounted for as a reverse acquisition with Hunter Bates as the accounting
acquirer (legal acquiree) and Standard Gold as the accounting acquiree (legal
acquirer). Upon effectiveness of the Share Exchange, we also adopted Hunter
Bates fiscal year end of December 31 (as Princeton Acquisitions was June 30).
The following management discussion and analysis of financial condition and
results of operations relate to Hunter Bates and its wholly owned subsidiary
Gregory Gold.
On June
12, 2008, Hunter Bates completed the acquisition of the Bates-Hunter Mine, which
included real property, mining claims, permits and equipment. The purchase was
financed through a limited recourse promissory note of Hunter Bates payable to
Mr. George Otten (on behalf of all of the Sellers) in the principal amount of
Cdn$6,750,000 and Wits Basin issued 3,620,000 shares of its common stock.
Through August 2008, a total of 12,039 feet of surface drilling had been
accomplished, but no further exploration activities will be conducted at the
Bates-Hunter Mine properties until such time as we have sufficient
funds.
As of
December 31, 2009, we only own the Bates-Hunter Mine, we possess only a few
pieces of equipment and we employ insufficient numbers of personnel necessary to
actually explore and/or mine for minerals and therefore, we are substantially
dependent on the third party contractors we engage to perform such operations.
As of the date of this Annual Report, we do not claim to have any mineral
reserves at the Bates-Hunter Mine.
RESULTS
OF OPERATIONS
FOR
THE YEAR ENDED DECEMBER 31, 2009 COMPARED TO THE YEAR ENDED DECEMBER 31,
2008.
Revenues
We had no
revenues from operations for the years December 31, 2009 and 2008. Furthermore,
we do not anticipate having any significant future revenues until an economic
mineral deposit is discovered or unless we make further acquisitions or complete
other mergers or joint ventures with business models that produce such
results.
15
Operating
Expenses
General
and administrative expenses were $133,640 for 2009 as compared to $78,445 for
2008. We anticipate that our operating expenses will remain at current levels
until such time as we are able to restart exploration activities
Exploration
expenses relate to the expenditures being reported on the work-in-process for
the Bates-Hunter project. Exploration expenses were $146,428 for 2009 as
compared to $1,572,988 for 2008. Exploration expenses relate to the defined
surface and underground drilling programs conducted at the Bates-Hunter Mine
property. The decline in spending from 2008 to 2009 is due to the lack of
available funds to explore. Depending upon our success in obtaining dedicated
funds and the timeframe for receipt of such funds, we anticipate the rate of
spending for fiscal 2010 exploration expenses to increase over 2009
expenses.
Depreciation
and amortization expenses were $105,723 for 2009 as compared to $65,142 for
2008, which represents depreciation of fixed assets for the mine itself and
equipment purchased for work being performed at the Bates-Hunter Mine. We
anticipate that our depreciation expense will remain at current levels over the
next fiscal year.
We
recorded $12,362 in losses in 2008 related to certain assets that became damaged
and un-repairable, which were being utilized for de-watering at the Bates-Hunter
Mine site.
Other Income and
Expenses
Our other
income and expense consists of interest income, non-cash interest expense and
non-cash foreign currency adjustments. Interest income for 2009 was $0 compared
to $628 for 2008. We expect that future interest income will be low during the
next twelve months as our cash balances are low.
I
nterest
expense for 2009 was $504,067 compared to $206,301 for 2008. The
primary increase is due to the Otten Note being outstanding for the full 12
months in 2009 versus only 6 months in 2008. These expenses represent the
amortization of imputed interest discount on the limited recourse promissory
note for Cdn$6,750,000. The note is interest-free until January 1,
2010, and from such date shall bear interest at a rate of 6% per annum, with a
maturity date of December 31, 2015. The total discount was $580,534
and has been fully amortized as of December 31, 2009. Additionally, in April
2009, we entered into a 12% Convertible Debenture with Cabo Drilling (America)
Inc., in the principal amount of $511,590. Wits Basin incurred the obligation at
the time it was the sole shareholder of Hunter Bates. As the obligation was
solely related to the operations of Hunter Bates, we’ve recorded accrued
interest of $41,712 as of December 31, 2009. The Debenture has a maturity date
of April 27, 2012
.
With the
consummation of the Bates-Hunter Mine acquisition in June 2008, we are recording
direct non-cash foreign currency exchange gains and losses due to our dealings
with the recourse promissory note, which is payable in Canadian Dollars.
We recorded a loss of $916,170 for 2009 and a gain of 1,222,082 for 2008 due to
fluctuations in the exchange rate between the US Dollar and the Canadian Dollar.
We will continue to record gains or losses related to foreign currency exchange
rate fluctuations as long as the Otten Note is outstanding.
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
is a measure of an entity’s ability to secure enough cash to meet its
contractual and operating needs as they arise. We have funded our operations and
satisfied our capital requirements through private placements of our equities
and advances from Wits Basin. Prior to the Share Exchange on September 29, 2009,
the intercompany advances from Wits Basin did not bear interest, and as such, no
interest expense has been reflected in our financial statements. We do not
anticipate generating sufficient net positive cash flows from our operations to
fund the next twelve months. We had a working capital deficit of $852,080 at
December 31, 2009. Cash and cash equivalents were $450,887 at December 31, 2009,
representing an increase of $449,232 from the cash and cash equivalents of
$1,655 at December 31, 2008.
16
Subsequent
to December 31, 2009, we have engaged a number of consultants to assist us in
public relations and marketing and have interviewed potential employees, and as
such, our cash reserves will not be sufficient to meet our operational needs and
thus, we need to raise additional capital to pay for our operational expenses.
Our basic operational expenses are estimated at approximately $20,000 per month
and we have the servicing of debt beginning on March 31, 2010. If we are not
able to raise additional working capital, whether from affiliated entities or
third parties, we may have to cutback on operational expenditures or cease
operations altogether.
For the
years ended December 31, 2009 and 2008, we had net cash used in operating
activities of $260,385 and $1,077,349, respectively. During 2009, our primary
capital requirement has been to maintain the Bates-Hunter Mine property while in
2008 we were still performing exploration activities.
For the
years ended December 31, 2009 and 2008, we had net cash used in investing
activities of $0 and $28,106, respectively, all related to exploration equipment
purchases for the Bates-Hunter Mine property.
For the
years ended December 31, 2009 and 2008, we had net cash provided by financing
activities of $709,617 and $1,107,110, respectively. Prior to the completion of
the Share Exchange on September 29, 2009, Hunter Bates completed a private
placement offering of 1,000,000 units, each unit consisting of one share of
Hunter Bates common stock and one warrant to purchase a share of Hunter Bates
common stock at an exercise price of $1.00, at a per unit price of $0.50 for a
total value of $500,000. Hunter Bates received cash proceeds of $250,000 (net of
offering costs totaling $18,328) and used the proceeds to make a payment on the
$2,500,000 Wits Basin Note. Effective with the Share Exchange, all 1,000,000
common and warrants were exchanged for Standard Gold common and warrants. During
the fourth quarter of 2009, we issued 1,630,000 shares of our unregistered
common stock through a private placement offering with Wits Basin. The private
placement offering was a unit transaction at $0.50 per unit, each unit
consisting of one share of our common stock, par value $0.001 per share, and one
five-year warrant to purchase a share of common stock at an exercise price of
$1.00 per share, resulting in net cash proceeds of $815,000.
The
following table summarizes our debt as of December 31, 2009:
|
O/S Amount
|
Accrued Interest
|
Maturity Date
|
Type
|
|||||
|
$
|
511,590
|
$ | 41,712 |
April 27, 2012
|
Convertible (1)
|
|||
|
$
|
2,000,000
|
(2)
|
$ | 29,918 |
December 31, 2013
|
Conventional
|
||
|
$
|
6,189,768
|
$ | (3) |
December 31, 2015
|
Conventional
|
|||
|
(1)
|
Cabo
Debenture convertible at $0.20 per share into shares of Wits Basin common
stock.
|
|
(2)
|
Hunter
Bates issued a note payable in favor of Wits Basin (the “Wits Basin
Note”), in the principal amount of $2,500,000 in consideration of various
start-up and development costs and expenses incurred by Wits Basin on
Hunter Bates’ behalf while it was a consolidated, wholly owned subsidiary
of Wits Basin.
|
|
(3)
|
The
limited recourse promissory note of Hunter Bates payable to Mr. Otten
begins accruing interest at a rate of 6% per annum on January 1, 2010, due
quarterly beginning April 1, 2010.
|
Summary
Our
existing sources of liquidity will not provide cash to fund operations and make
the required payments on our debt service for the next twelve months. Our
ability to continue as a going concern is dependent entirely on raising funds
through the sale of equity or debt, and/or from receiving funds from Wits Basin.
Wits Basin is currently assisting us in our endeavors to raise working
capital. If we are unable to obtain the necessary capital, we may have to
cease operations.
17
Foreign Exchange
Exposure
Since our
entrance into the minerals arena, most of our dealings have been with Canadian
companies and the funds have required a mixture of US Dollar and Canadian
denominations. Even though currently we may not record direct losses due to our
dealings with market risk, as we reach points in time requiring payment
obligations, we may have direct losses of actual cash expenditures and realize
the associated reduction in the productivity of our assets. We do not enter into
hedging schemes to offset potential foreign currency exchange
fluctuations.
Off-Balance Sheet
Arrangements
During
the year ended December 31, 2009, we did not engage in any off balance sheet
arrangements as defined in item 303(a)(4) of the SEC’s Regulation
S-K.
|
ITEM
8.
|
FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
|
The
Financial Statements of the Company, the accompanying notes and the report of
independent registered public accounting firm are included as part of this
Annual Report on Form 10-K beginning on page F-1, which follows the signature
page.
|
ITEM
9.
|
CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
Effective
October 15, 2009, following the date of the reverse merger transaction between
Princeton Acquisitions, Inc. and Hunter Bates, the Company dismissed Cordovano
and Honeck LLP as its independent registered public accounting firm. The
Company's Board of Directors participated in and approved the decision to change
its independent registered public accounting firm.
The
report of Cordovano and Honeck on the Company's financial statements for the
past fiscal year (i.e., the financial statements of Princeton Acquisitions, Inc.
for the year ended June 30, 2009) did not include an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles, except as to Cordovano and Honeck’s independent
auditor’s report dated September 10, 2009, furnished in connection with
Princeton Acquisition’s annual report on Form 10-K for the period ended June 30,
2009, which contained an opinion raising substantial doubt about Princeton
Acquisition’s ability to continue as a going concern.
In
connection with its audit for the most recent fiscal year and through September
10, 2009, there were no disagreements with Cordovano and Honeck on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Cordovano and Honeck, would have caused it to make reference to the matter
thereof in connection with its report.
On
October 15, 2009, the Company's Board of Directors retained and appointed
Moquist Thorvilson Kaufmann Kennedy & Pieper LLC (f/k/a Carver Moquist &
O’Connor, LLC) (“MTK”) as our independent registered public accounting firm. MTK
served as the independent registered public accounting firm for Hunter Bates
prior to the Share Exchange.
During
the Company’s two most recent fiscal years and any subsequent interim period
prior to October 15, 2009, neither the Company nor anyone acting on its behalf
consulted with MTK regarding either (a) the application of accounting principles
to a specific completed or contemplated transaction, or the type of audit
opinion that might be rendered on the Company’s financial statements, and
neither a written report or oral advice was provided to the Company that MTK
concluded was an important factor considered by the Company in reaching a
decision as to the accounting, auditing or financial reporting issue; or (b) any
matter that was the subject of a disagreement or event identified in response to
Item 304(a)(1)(iv)or 304(a)(1)(v) of Regulation S-K and the related instructions
to Item 304 of Regulation S-K.
18
Disclosure Controls and
Procedures
Under the
supervision of and the participation of our management, our Chief Executive
Officer and Chief Financial Officer, have conducted an evaluation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as
of the end of the period covered by this Annual Report to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission rules and
forms, and is accumulated and communicated to our management as appropriate to
allow timely decisions regarding required disclosure. Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that the
design and operation of our disclosure controls and procedures were effective as
of December 31, 2009.
On
September 29, 2009, we acquired Hunter Bates through a reverse acquisition. We
excluded Hunter Bates from our evaluation of internal controls over financial
reporting. Due to the significance of this acquisition to our Company as a whole
and the limited amount of time available to us, we did not have enough resources
to assess the internal controls of Hunter Bates. We will evaluate and report on
our internal controls, including Hunter Bates, in fiscal 2010.
Management’s Report on
Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting and for the assessment of the effectiveness of
internal control over financial reporting. Internal control over financial
reporting is defined in Exchange Act Rules 13a-15(f) and 15d-15(f) as a process
designed by, or under the supervision of, the Company’s principal executive and
financial officers and effected by the Company’s board of directors, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of consolidated financial statements for external purposes in
accordance with generally accepted accounting principles.
On
September 29, 2009, we completed a reverse acquisition transaction with Hunter
Bates Mining Corporation (“Hunter Bates”), whereby we adopted the Hunter Bates
business model. Hunter Bates was a privately held company, with Wits Basin
Precious Minerals Inc. (“Wits Basin”) as its majority shareholder. Effective
with the reverse acquisition and share exchange, Wits Basin became our majority
shareholder. As the financial statements and information relating to Hunter
Bates now constitute the financial statements and information of the “Company,”
a meaningful evaluation of the effectiveness of internal control over financial
reporting as of December 31, 2009 would need to focus on the internal controls
of Hunter Bates. Our review of the internal controls for the 10-K reporting
period were that of the shell company.
Prior to
September 29, 2009, we were a shell company and our internal controls and
procedures were of a very simple nature. After the completion of the
transaction, we began with very limited resources and limited personnel, which
created a lack of segregation of duties and limited the scope of our assessment
of the controls and procedures of Hunter Bates during the time of our
control. As of December 31, 2009, our internal control over financial
reporting was not supported by written policies and procedures. We will continue
to evaluate and develop our internal control over financial reporting in fiscal
2010.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
19
Under the
supervision and with the participation of our management, our Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of the
effectiveness of our internal control over financial reporting as of December
31, 2009 based on an overview of the criteria established in
Internal Control – Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on the results of this evaluation, we concluded
that our internal control over financial reporting was effective as of December
31, 2009.
Changes in Internal Control
over Financial Reporting
With the
addition of new processes and procedures associated with the reverse
acquisition, there were changes in our internal control over financial reporting
that have materially affected our internal control over financial
reporting. These changes include an increased requirement of business
transaction review as Hunter Bates is an operating entity and an increased
requirement of board oversight and review as we execute our business
strategy.
Regulatory
Statement
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation requirements
by our registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this Annual Report.
None.
20
|
ITEM
10.
|
DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE
GOVERNANCE
|
Set forth
below are the names of all directors and executive officers of the Company,
their respective ages and all positions and offices with the Company held by
each person as of March 24, 2010:
|
Name
|
Age
|
Positions with the Company
|
|||
|
Stephen
D. King
|
53
|
Chief Executive Officer and Director
|
|||
|
Mark
D. Dacko
|
58
|
Chief Financial Officer and Secretary
|
|||
|
Dr.
Clyde L. Smith
|
73
|
Director
|
|||
|
Donald
Stoica
|
52
|
Director
|
Stephen
D. King has served as our Chief Executive Officer and director since our
inception in April 2008. Mr. King also serves as Chief Executive Officer
of Wits Basin, since September 15, 2006, and served as its President from May
15, 2006 to September 15, 2006. Mr. King has also been a director of Wits Basin
since July 2004. Since October 2000, Mr. King has served as President of SDK
Investments, Inc., a private investment firm located in Atlanta, Georgia
specializing in corporate finance and investing.
Mark D.
Dacko has served as our Chief Financial Officer since our inception in April
2008. Mr. Dacko served as a director from April 2008 until September 29, 2009.
Mr. Dacko also serves as Chief Financial Officer and Secretary of Wits Basin,
since March 2003. Mr. Dacko also served as Wits Basin’s Controller from February
2001 to March 2003 and as a board member from June 2003 until April
2008.
Dr. Clyde
L. Smith was appointed to our board of directors on October 13, 2009. Dr. Smith
also serves as a director of Wits Basin, since June 2009, and as its President
since September 15, 2006. Since 1970, Dr. Smith has been sole owner and operator
of CL Smith Consultants, an independent geological consulting firm. Dr. Smith
holds a B.A. from Carleton College, a M.Sc. from the University of British
Columbia, and a Ph.D. from the University of Idaho. Dr. Smith is a registered
Professional Engineer with the Association of Professional Engineers and
Geoscientists of British Columbia. Dr. Smith has founded or co-founded
five exploration companies and is responsible for the discovery of four
deposits: the Jason lead-zinc-silver deposit, Yukon Territory, Canada; the Santa
Fe gold deposit, Nevada; the North Lake gold deposit, Saskatchewan, Canada; and
the Solidaridad gold-silver-copper deposit, Mexico.
Donald
Stoica was appointed to our board of directors on October 13, 2009. Mr. Stoica
also serves as a director of Wits Basin, since April 2008. In February 1999, Mr.
Stoica founded SSR Engineering, Inc., which is a privately held corporation
based in Anaheim, California that develops high performance radar systems for
use in security, navigation, defense and related applications. Mr. Stoica has
served as President and Chief Executive Officer of SSR Engineering since its
inception. From 1975-1998, Mr. Stoica worked at Hughes Aircraft Company,
including a Technical Director. Mr. Stoica received his B.S. in Electrical
Engineering from California Polytechnic State University in Pomona, California
and his Masters Degree in Electrical Engineering from the University of Southern
California in Los Angeles, California. Mr. Stoica is also a principal in Pacific
Dawn Capital LLC, a company which Wits Basin has various financing transactions
with since 2005.
There is
no family relationship between any director and executive officer of the
Company.
CODE
OF ETHICS
We have
not yet adopted a Code of Ethics that applies to our principal executive
officer, principal financial officer and persons performing similar functions,
and Standard Gold also did not have a Code of Ethics in place at the time of the
Share Exchange. The current board of directors anticipates putting a Code of
Ethics into effect during the fiscal year 2010.
21
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934 requires our director, officer and
holders of more than 10% of our common stock to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of our common stock and other equity securities. Based solely upon our
review of such filings, we are not aware of any failures by such persons to make
any such filings on a timely basis.
AUDIT
COMMITTEE, COMPENSATION COMMITTEE AND FINANCIAL EXPERT
We do not
currently have a separately designated nominating committee or audit committee
of the Board of Directors. Consequently, we do not have charters for any
of those committees.
The
Company does not have a formal audit committee with a financial expert due to
lack of funds; therefore our Board of Directors as a group acts in the capacity
as the audit committee. There were no audit committee meetings held during 2009.
Financial information relating to quarterly reports was disseminated to all
board members for review. The audited financial statements for the years ended
December 31, 2009 and 2008 were provided to each member of the board in which
any concerns by the members were directed to management and the
auditors.
The
Company has not established a compensation committee or another board committee
performing a similar function. Our directors and officers have to date served
without compensation from our Company and we have not adopted any processes or
procedures for the consideration and determination of executive and director
compensation, and no officer or employee of the Company has been involved in any
deliberations of our Board with respect to executive compensation.
EXECUTIVE
COMPENSATION
The
Company has not provided compensation to its named executive officers since its
inception. Stephen King and Mark Dacko, who serve as the Chief Executive Officer
and Chief Financial Officer of Standard Gold, also served in similar capacities
for Wits Basin. Messrs. King and Dacko are compensated by Wits Basin for their
services to Wits Basin in such capacities, and each has entered into employment
agreements with Wits Basin. Such employment agreements between Wits Basin and
Messrs. King and Dacko, respectively, do not condition or make contingent any
compensation from Wit Basin that is directly payable as a result of the
performance of Standard Gold.
Standard
Gold has a verbal agreement with Wits Basin, whereby they provide certain
general and administrative services (primarily management salaries and rent) to
us. A portion of these costs are allocated to Standard Gold and then reimbursed
to Wits Basin. Total charges to operations amounted to $54,151 and $53,997
for the years ended December 31, 2009 and 2008, respectively.
EXECUTIVE
EMPLOYMENT AGREEMENTS
We have
not entered into any employment agreements with any of our named executives
during the year ended December 31, 2009.
OUTSTANDING
EQUITY AWARDS TABLE
The
Company does not have any employee stock option plans.
22
DIRECTOR
COMPENSATION
The
Company does not have any director stock option plans. Members of our board who
are also employees of ours receive no compensation for their services as
directors. Non-employee directors are reimbursed for all reasonable and
necessary costs and expenses incurred in connection with their duties as
directors.
|
ITEM
12.
|
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS
|
The
following information sets forth the number and percentage of shares of the
Company’s common stock owned beneficially, as of March 24, 2010, by any person,
who is known to the Company to be the beneficial owner of five percent or more
of the Company’s common stock, and, in addition, by each director and each
executive officer of the Company, and by all directors and executive officers as
a group.
Information
as to beneficial ownership is based upon statements furnished to the Company by
such persons.
|
Name and Address
|
Amount of Beneficial Ownership (1)
|
Percentage of Class
|
||||||
|
Wits
Basin Precious Minerals Inc.
|
23,143,544 | (2) | 94.4 | |||||
|
80
South 8
th
Street, Suite 900
|
||||||||
|
Minneapolis,
MN 55402
|
||||||||
|
Stephen
D. King
|
23,143,544 | (3) | 94.4 | |||||
|
80
South 8
th
Street, Suite 900
|
||||||||
|
Minneapolis,
MN 55402
|
||||||||
|
Mark
D. Dacko (4)
|
— | — | ||||||
|
80
South 8
th
Street, Suite 900
|
||||||||
|
Minneapolis,
MN 55402
|
||||||||
|
Dr.
Clyde Smith (5)
|
— | — | ||||||
|
80
South 8
th
Street, Suite 900
|
||||||||
|
Minneapolis,
MN 55402
|
||||||||
|
Donald
S. Stocia (5)
|
— | — | ||||||
|
80
South 8
th
Street, Suite 900
|
||||||||
|
Minneapolis,
MN 55402
|
||||||||
|
All
directors and officers as a group (4 persons)
|
23,143,544 | 94.4 | ||||||
|
Irwin
Gross
|
1,500,000 | (6) | 6.3 | |||||
|
800
S. Ocean Blvd., Apt 21
|
||||||||
|
Boca
Raton, FL 33432
|
||||||||
|
(1)
|
Except
as otherwise indicated, each person possesses sole voting and investment
power with respect to the shares shown as beneficially
owned.
|
23
|
(2)
|
Includes
630,000 shares of our common stock and warrants to purchase an aggregate
of 1,630,000 shares of common stock at an exercise price of $1.00 per
share being held in reserve by Wits Basin. Mr. King, as the Chief
Executive Officer and a director of Wits Basin, may be deemed to hold
voting and investment control over the shares held by Wits Basin. China
Gold, LLC, a Kansas limited liability company (“China Gold”), a creditor
of Wits Basin, holds a pledge of its 20,883,544 shares of our common stock
held by Wits Basin. Hunter Bates has also guaranteed certain obligations
of Wits Basin to China Gold, as discussed in more detail under Item 13 —
Certain Relationships, Related Transactions and Director Independence that
follows. In the event of a default by Wits Basin under certain of
its loans with China Gold, Chin Gold could control such shares, and as a
result take a majority interest in our Company. China Gold also
holds a subordinated security interest through a deed of trust on our
Bates-Hunter Mine property.
|
|
(3)
|
Upon
effectiveness of the Share Exchange, Mr. King was appointed as the Chief
Executive Officer, President and as a director of the Company.
Shares represent holdings of Wits Basin, of which Mr. King serves as Chief
Executive Officer and a director.
|
|
(4)
|
Upon
effectiveness of the Share Exchange, Mr. Dacko was appointed as the Chief
Financial Officer of the Company. Until completion of the Share Exchange
on September 29, 2009, Mr. Dacko served as a director of Hunter Bates
Mining Corporation.
|
|
(5)
|
Dr.
Clyde Smith and Donald Stoica became members of the Company’s Board of
Directors effective October 13, 2009. Messrs. Smith and Stoica also serve
as directors of Wits Basin.
|
|
(6)
|
Represents
(i) 180,000 shares of common stock and warrants to purchase 180,000 shares
of common stock held by Irwin Gross IRA, of which Mr. Gross is the
trustee, (ii) 160,000 shares of common stock and warrants to purchase
160,000 shares of common stock held by 1995 Gross Family Remainder Unit
Trust, of which Mr. Gross is the trustee, (iii) 160,000 shares of common
stock and warrants to purchase 160,000 shares of common stock held by
Premier Partners Investments, LLLP, of which Mr. Gross is the managing
partner, and (iv) warrants to purchase 500,000 shares of common stock at
an exercise price of $0.01 per share held by Mr.
Gross.
|
EQUITY
COMPENSATION
The
Company does not have any employee stock option or director stock option
plans.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
|
The
following describes certain relationships and related transactions that we have
with persons deemed to be affiliates of ours. We believe that each of the
transactions described below were on terms at least as favorable to our Company
as we would have expected to negotiate with unaffiliated third
parties.
Wits Basin Precious Minerals
Inc.
In August
2009, we issued a note payable in favor of Wits Basin, which then held 100% of
the equity interest in Hunter Bates, in the principal amount of $2,500,000 (the
“Wits Basin Note”) in consideration of various start-up and developments costs
and expenses incurred by Wits Basin on our behalf while we were a consolidated,
wholly owned subsidiary of Wits Basin. The Wits Basin Note is due on December
31, 2013, and calls for quarterly payments of $150,000. Interest accrues at a
rate of 6% compounded per annum. In the event we generate net revenues in excess
of $2,000,000 during any fiscal year or complete one or more financings in the
aggregate amount of $10,000,000, our payment obligations under the Wits Basin
Note will, at the option of Wits Basin, accelerate and become due and
payable.
24
In
September 2009, we satisfied an aggregate of $500,000 under the Wits Basin Note
through (i) the issuance of 500,000 shares of our common stock and warrants to
purchase an additional 500,000 shares at an exercise price of $1.00, valued at
$250,000, to Mr. Irwin Gross, a beneficial shareholder of ours who was also a
creditor of Wits Basin, in satisfaction of certain of Wits Basins’ obligation to
Mr. Gross and (ii) the payment to Wits Basin of $250,000 to enable Wits Basin to
purchase shares of Princeton common stock from certain of its shareholders at or
around the time of closing of the Share Exchange. As of the date of this Annual
Report, the outstanding obligation under the Wits Basin Note is
$2,000,000.
Hunter
Bates has guaranteed the obligations of Wits Basin to China Gold, LLC under a
10% Senior Secured Convertible Promissory Note dated on or around February 13,
2008 (with an original principal amount of $1,020,000) and a 10% Senior Secured
Promissory Note dated on or around July 10, 2008 (with an original principal
amount of $110,000) (collectively, the “China Gold Notes”). The China Gold Notes
were amended and restated on December 17, 2009, whereby they became payable on
demand at any time on or after February 15, 2010. The China Gold Notes accrue
interest at the rate of 10% per year. As of December 31, 2009, the China Gold
Notes have outstanding principal amounts of $117,391 and $110,000. Wits Basin
secured its obligations under the China Gold Notes with the majority of its
assets, including its equity interest in 18,500,000 shares of our Company that
it holds. Pursuant to the terms of that certain Seconded Amended and Restated
Security Agreement dated as of December 17, 2009 with China Gold, all of Hunter
Bates assets are pledged as security for Wits Basin’s obligations under the
China Gold Notes.
Hunter
Bates has guaranteed the obligations of Wits Basin to Kenglo One, Ltd.
(“Kenglo”) under a Loan Agreement dated December 14, 2009 (the “Loan
Agreement”), pursuant to which, among other things, Wits Basin issued a Secured
Promissory Note dated December 14, 2009 in favor of Kenglo in a principal amount
of US$5,000,000 (the “Kenglo Note”). The Kenglo Note has a maturity date of
February 14, 2011. As of December 31, 2009, the Kenglo Note has an outstanding
balance of $5,000,000. Wits Basin secured its obligations under the Kenglo
Note with the majority of its assets, on a
pari passu
basis with its
security interest granted to China Gold, including its equity interest in
18,500,000 shares of our Company that it holds. Pursuant to the terms of the
Security Agreement with Kenglo dated as of December 14, 2009, all of Hunter
Bates assets are pledged as security for Wits Basin’s obligations under the
Kenglo Note.
Hunter
Bates has guaranteed Wits Basin’s obligations under a 12% Convertible Debenture
issued in favor of Cabo Drilling (America) Inc., a Washington corporation
formerly known as Advanced Drilling, Inc. (“Cabo”), dated April 27, 2009, in the
principal amount of $511,590 (the “Debenture”). The Debenture has a maturity
date of April 27, 2012. Additionally, Hunter Bates entered into that
certain Deed of Trust to Public Trustee, Mortgage, Security Agreement,
Assignment of Production and Proceeds, Financing Statement and Fixture Filing
(the “Cabo Deed of Trust”) to provide additional security for the obligations
under the Debenture.
During
the forth quarter of 2009, we issued 1,630,000 shares of our unregistered common
stock through a private placement offering with Wits Basin. The private
placement offering was a unit transaction at $0.50 per unit, each unit
consisting of one share of our common stock, par value $0.001 per share, and one
five-year warrant to purchase a share of common stock at an exercise price of
$1.00 per share, resulting in net proceeds of $815,000.
Wits
Basin provides certain general and administrative services (primarily management
salaries and rent) for the Company. A portion of these costs are allocated to
Standard Gold and then reimbursed to Wits Basin. Total charges to
operations amounted to $54,151 and $53,997 for the years ended December 31, 2009
and 2008, respectively.
Wits
Basin beneficially owns approximately 94% of our outstanding common stock.
Additionally, our chief executive officer and chief financial officer serve in
equivalent positions in Wits Basin and each member of our board of directors
serves as directors of Wits Basin.
DIRECTOR
INDEPENDENCE
In
determining whether the members of our Board are independent, we have elected to
use the definition of “independence” set forth by Section 121 of the Listing
Standards for the American Stock Exchange (“AMEX”), although we are not
currently listed on AMEX, whereby a majority of the members of a listed
company’s board of directors must qualify as “independent” as determined by the
board. Consistent with these considerations, and after review of all relevant
transactions or relationships between each director, or any of his family
members, and Standard Gold, Inc., its senior management, the Board has
determined that none are currently independent within the meaning of the
applicable listing standard of AMEX.
25
On
October 15, 2009, our Board of Directors authorized the engagement of Moquist
Thorvilson Kaufmann Kennedy & Pieper LLC (“MTK”) to audit our financial
statements for the year ended December 31, 2009 and on March 11, 2009, the Wits
Basin Board of Directors ratified the engagement of MTK to audit the financial
statements of its subsidiaries (Hunter Bates and Gregory Gold), which applied to
the year ended December 31, 2008.
AUDIT
FEES:
The
aggregate fees billed for professional services rendered by MTK for the audit of
the Company's annual financial statements and review of financial statements
included in the Company's Form 10-K and 10-Q for 2009 and 2008, and services
that are normally provided by the accountant in connection with statutory and
regulatory filings or engagements was $40,000 for the year ended December 31,
2009 and $29,000 for the year ended December 31, 2008.
AUDIT
RELATED FEES:
There
were no fees billed in each of the last two fiscal years for assurance and
related services by the principal accountant that are reasonably related to the
performance of the audit or review of the Company's financial
statements.
TAX
FEES:
There
were no fees billed in each of the last two fiscal years for professional
services rendered by the principal accountant for tax compliance, tax advice,
and tax planning.
ALL
OTHER FEES:
There
were no other fees billed in each of the last two fiscal years for products and
services provided by the principal accountant, other than the services reported
above.
POLICY
ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF
INDEPENDENT AUDITORS
At
present, we do not have an audit committee, but rather our entire Board of
Directors performs the functions of the audit committee. Our Board
approves each engagement for audit or non-audit services before we engage our
independent auditor to provide those services. The Board has not established any
pre-approval policies or procedures that would allow our management to engage
our independent auditor to provide any specified services with only an
obligation to notify the audit committee of the engagement for those services.
None of the services provided by our independent auditors for fiscal 2009 was
obtained in reliance on the waiver of the pre-approval requirement afforded in
SEC regulations.
The
following exhibits are filed as part of this Annual Report on Form 10-K, or are
incorporated herein by reference.
|
Exhibit
|
Description
|
|
|
2.1
|
Share
Exchange Agreement dated September 11, 2009 by and among Princeton
Acquisitions, Inc., Hunter Bates Mining Corporation and the shareholders
of Hunter Bates Mining Corporation (incorporated by reference to Exhibit
2.1 to the Company’s Current Report on Form 8-K filed on October 5,
2009).
|
|
|
3.1**
|
Amended
and Restated Articles of Incorporation, effective December 7,
2009.
|
|
|
3.2
|
Amended
and Restated By-Laws effective January 12, 2010 (incorporated by reference
to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on
January 13, 2010).
|
26
|
4.1
|
Limited
Recourse Promissory Note of Hunter Bates Mining Corp issued in favor of
George E. Otten (incorporated by reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K filed on October 5, 2009).
|
|
|
4.2**
|
Deed
of Trust and Security Agreement of Hunter Bates Mining Corp issued in
favor of Gilpin County Public Trustee.
|
|
|
4.3**
|
Security
Agreement dated February 11, 2008 by and among Wits Basin Precious
Minerals Inc., Gregory Gold Producers Inc. and China Gold, LLC (as
successor in interest to Platinum Long Term Growth V,
LLC).
|
|
|
4.4
|
Joinder
of Hunter Bates Mining Corporation to Security Agreement dated February
11, 2008 in favor of China Gold, LLC (as successor in interest to Platinum
Long Term Growth V, LLC) (incorporated by reference to Exhibit 4.4 to the
Company’s Current Report on Form 8-K filed on October 5,
2009).
|
|
|
4.5
|
Amended
and Restated Guaranty of Gregory Gold Producers, Inc. and Hunter Bates
Mining Corporation dated July 10, 2008 in favor of China Gold, LLC (as a
successor-in-interest to Platinum Long Term Growth V, LLC) (incorporated
by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K
filed on October 5, 2009).
|
|
|
4.6**
|
Deed
of Trust to Public Trustee, Mortgage, Security Agreement, Assignment of
Production and Proceeds, Financing Statement and Fixture Filing issued in
favor of Gilpin County Public Trustee for benefit of Cabo Drilling
(America), Inc. dated April 27, 2009.
|
|
|
4.7**
|
Deed
of Trust and Security Agreement of Hunter Bates Mining Corp issued in
favor of Gilpin County Public Trustee for benefit of China Gold, LLC (as
successor-in-interest to Platinum Long Term Growth V,
LLC).
|
|
|
4.8
|
Promissory
Note issued in favor of Wits Basin Precious Minerals Inc. (incorporated by
reference to Exhibit 4.8 to the Company’s Current Report on Form 8-K filed
on October 5, 2009).
|
|
|
4.9
|
Summary
of terms of warrants issued to certain consultants (incorporated by
reference to Exhibit 4.9 to the Company’s Current Report on Form 8-K filed
on October 5, 2009).
|
|
|
4.10
|
Form
of Warrant issued in connection with Hunter Bates private placement
offering completed September 29, 2009 (incorporated by reference to
Exhibit 4.10 to the Company’s Current Report on Form 8-K filed on October
5, 2009).
|
|
|
10.1**
|
Asset
Purchase Agreement by and among the Company and Hunter Gold Mining
Corporation, a British Columbia corporation, Hunter Gold Mining Inc., a
Colorado corporation, Central City Consolidated Mining Corp., a Colorado
corporation and George Otten, a resident of Colorado, dated September 20,
2006.
|
|
|
10.2**
|
Fourth
Amendment to Asset Purchase Agreement dated January 14, 2008 by and among
the Company, Central City Mining Corp., George Otten, Hunter Gold Mining
Corp. and Hunter Gold Mining Inc.
|
|
|
10.3**
|
Fifth
Amendment to Asset Purchase Agreement by and among the Company, Hunter
Gold Mining Corp, Hunter Gold Mining Inc., George E. Otten and Central
City Consolidated, Corp. d/b/a Central City Consolidated Mining Co. dated
June 9, 2008.
|
|
|
16.1
|
Letter
of Cordovano and Honeck, LLP (incorporated by reference to Exhibit 16.1 to
the Company’s Current Report on Form 8-K filed on October 15,
2009).
|
|
|
21**
|
Subsidiaries
of the Registrant.
|
|
|
24**
|
Power
of Attorney (included on the signature page hereto).
|
|
|
31.1**
|
Certification
of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
31.2**
|
Certification
of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
32.1**
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
|
32.2**
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
** Filed
herewith electronically
27
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Company caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
STANDARD
GOLD, INC.
|
|||
|
(“COMPANY”)
|
|||
|
Dated:
March 26, 2010
|
By:
|
/s/ Stephen D. King
|
|
|
Stephen
D. King
|
|||
|
Chief
Executive Officer
|
Each
person whose signature to this Annual Report appears below hereby constitutes
and appoints Stephen D. King and Mark D. Dacko as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in the capacity stated below and to perform any acts
necessary to be done in order to file all amendments to this Annual Report and
any and all instruments or documents filed as part of or in connection with this
Annual Report or the amendments thereto and each of the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or his substitutes,
shall do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Company, in the capacities and
dates indicated.
|
Name
|
Title
|
Date
|
||
|
/s/ Stephen D. King
|
Chief Executive Officer and Director
|
March 26, 2010
|
||
|
Stephen
D. King
|
(principal executive officer)
|
|||
|
/s/ Mark D. Dacko
|
Chief Financial Officer and Secretary
|
|||
|
Mark
D. Dacko
|
(principal financial and accounting
officer)
|
March 26, 2010
|
||
|
|
Director
|
|
||
|
Clyde
Smith
|
||||
|
/s/ Donald S. Stoica
|
Director
|
March 25, 2010
|
||
|
Donald
S. Stoica
|
28
Table of
Contents
|
Page
|
||
|
Report
of Independent Registered Public Accounting Firm of
|
||
|
Moquist
Thorvilson Kaufmann Kennedy & Pieper LLC
|
F-2
|
|
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
F-3
|
|
|
Consolidated
Statements of Operations for the Years Ended
|
||
|
December
31, 2009 and 2008
|
F-4
|
|
|
Consolidated
Statements of Shareholders’ Equity (Deficit)
|
||
|
for
the Years Ended December 31, 2009 and 2008
|
F-5
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended
|
||
|
December
31, 2009 and 2008
|
F-6
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
REPORT
OF INDEPENDENT REGISTERED
PUBLIC
ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
Standard
Gold, Inc. and subsidiaries (an exploration stage company)
We have
audited the accompanying consolidated balance sheets of Standard Gold, Inc. and
subsidiaries (an exploration stage company) as of December 31, 2009 and 2008,
and the related consolidated statements of operations, shareholders’ deficit and
cash flows for the years ended December 31, 2009 and 2008, and the period from
September 28, 2004 (inception of exploration stage) to December 31, 2009.
Standard Gold, Inc.’s management is responsible for these financial statements.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Standard Gold, Inc. as of December
31, 2009 and 2008, and the results of its operations and its cash flows for the
years ended December 31, 2009 and 2008, and the period from September 28, 2004
(inception of exploration stage) to December 31, 2009 in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company had net losses for the years
ended December 31, 2009 and 2008 and had an accumulated deficit at December 31,
2009. These conditions raise substantial doubt about its ability to
continue as a going concern. Management’s plans regarding those matters
are also described in Note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/
Moquist Thorvilson Kaufmann Kennedy & Pieper LLC
Minneapolis,
Minnesota
March 26,
2010
F-2
STANDARD
GOLD, INC.
(AN
EXPLORATION STAGE COMPANY)
|
December 31,
|
||||||||
|
2009
|
2008
(1)
|
|||||||
|
(retrospectively
adjusted)
|
||||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
|
$ | 450,887 | $ | 1,655 | ||||
|
Property,
plant and equipment, net
|
1,536,408 | 2,047,222 | ||||||
|
Mineral
properties and development costs
|
5,660,726 | 5,255,635 | ||||||
|
Debt
issuance costs, net
|
23,392 | — | ||||||
|
Total
Assets
|
$ | 7,671,413 | $ | 7,304,512 | ||||
|
Liabilities
and Shareholders’ Deficit
|
||||||||
|
Current
liabilities:
|
||||||||
|
Convertible
note payable, current portion
|
$ | 150,000 | $ | — | ||||
|
Current
portion of long-term notes payable
|
600,000 | 204,248 | ||||||
|
Due
to Wits Basin Precious Minerals Inc (majority shareholder)
|
51,921 | 6,239,843 | ||||||
|
Accounts
payable
|
46,101 | 26,928 | ||||||
|
Accrued
expenses
|
454,945 | 792,865 | ||||||
|
Total
current liabilities
|
1,302,967 | 7,263,884 | ||||||
|
Convertible
note payable, long-term portion
|
314,923 | — | ||||||
|
Long-term
note payable (majority shareholder)
|
1,400,000 | — | ||||||
|
Long-term
note payable, net of discount
|
6,189,768 | 4,935,389 | ||||||
|
Total
liabilities
|
9,207,658 | 12,199,273 | ||||||
|
Shareholders’
deficit:
|
||||||||
|
Preferred
stock, $1 par value, 50,000,000 shares authorized:
|
||||||||
|
none
issued or outstanding
|
— | — | ||||||
|
Common
stock, $.001 par value, 100,000,000 shares authorized:
|
||||||||
|
22,840,649
and 18,500,000 shares issued and outstanding
|
||||||||
|
at
December 31, 2009 and 2008, respectively
|
22,841 | 18,500 | ||||||
|
Additional
paid-in capital
|
5,141,714 | (18,489 | ) | |||||
|
Accumulated
deficit during exploration stage
|
(6,700,800 | ) | (4,894,772 | ) | ||||
|
Total
shareholders’ deficit
|
(1,536,245 | ) | (4,894,761 | ) | ||||
|
Total
Liabilities and Shareholders’ Deficit
|
$ | 7,671,413 | $ | 7,304,512 | ||||
The
accompanying notes are an integral part of these consolidated financial
statements.
(1) The
Hunter Bates and Gregory Gold audited balance sheets, statements of operations
and cash flows were retrospectively adjusted in connection with the reverse
acquisition which took place on September 29, 2009. See Note 3 – “Retrospective
Adjustment for the December 31, 2008 Financial Statements” for further
information.
F-3
STANDARD
GOLD, INC.
(AN
EXPLORATION STAGE COMPANY)
|
Sept. 28, 2004
(inception)
|
||||||||||||
|
December 31,
|
to Dec. 31,
|
|||||||||||
|
2009
|
2008
(1)
|
2009
|
||||||||||
|
(retrospectively
adjusted)
|
||||||||||||
|
Revenues
|
$ | — | $ | — | $ | — | ||||||
|
Operating
expenses:
|
||||||||||||
|
General
and administrative
|
133,640 | 78,445 | 602,066 | |||||||||
|
Exploration
expenses
|
146,428 | 1,572,988 | 5,470,131 | |||||||||
|
Depreciation
and amortization
|
105,723 | 65,142 | 213,181 | |||||||||
|
Loss
on disposal of assets
|
— | 12,362 | 12,362 | |||||||||
|
Total
operating expenses
|
385,791 | 1,728,937 | 6,297,740 | |||||||||
|
Loss
from operations
|
(385,791 | ) | (1,728,937 | ) | (6,297,740 | ) | ||||||
|
Other
income (expense):
|
||||||||||||
|
Other
income
|
— | 628 | 1,396 | |||||||||
|
Interest
expense
|
(504,067 | ) | (206,301 | ) | (710,368 | ) | ||||||
|
Foreign
currency gains (loss)
|
(916,170 | ) | 1,222,082 | 305,912 | ||||||||
|
Total
other income (expense)
|
(1,420,237 | ) | 1,016,409 | (403,060 | ) | |||||||
|
Loss
from operations before income taxes
|
(1,806,028 | ) | (712,528 | ) | (6,700,800 | ) | ||||||
|
Income
tax provision
|
— | — | — | |||||||||
|
Net
loss
|
$ | (1,806,028 | ) | $ | (712,528 | ) | $ | (6,700,800 | ) | |||
|
Basic
and diluted net loss per common share
|
$ | (0.09 | ) | $ | (0.04 | ) | ||||||
|
Basic
and diluted weighted average
|
||||||||||||
|
common
shares outstanding
|
19,275,573 | 18,500,000 | ||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
(1) The
Hunter Bates and Gregory Gold audited balance sheets, statements of operations
and cash flows were retrospectively adjusted in connection with the reverse
acquisition which took place on September 29, 2009. See Note 3 – “Retrospective
Adjustment for the December 31, 2008 Financial Statements” for further
information.
F-4
STANDARD
GOLD, INC.
(AN
EXPLORATION STAGE COMPANY)
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ DEFICIT
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
|
Additional
|
||||||||||||||||||||
|
Common stock
|
paid-in
|
Accumulated
|
||||||||||||||||||
|
Shares
|
Amount
|
capital
|
deficit
|
Total
|
||||||||||||||||
|
BALANCE,
December 31, 2007 (1) (retrospectively adjusted)
|
18,500,000 | $ | 18,500 | $ | (18,489 | ) | $ | (4,182,244 | ) | $ | (4,182,233 | ) | ||||||||
|
Net
loss
|
— | — | — | (712,528 | ) | (712,528 | ) | |||||||||||||
|
BALANCE,
December 31, 2008 (1) (retrospectively adjusted)
|
18,500,000 | 18,500 | (18,489 | ) | (4,894,772 | ) | (4,894,761 | ) | ||||||||||||
|
Recapitalization
of Princeton Acquisitions, Inc. upon execution of share exchange on
September 29, 2009
|
1,710,649 | 1,711 | (1,711 | ) | — | — | ||||||||||||||
|
Issuance
of 1,000,000 shares of common stock and warrants on September 29, 2009
private placement at $0.50 per unit less transaction costs of
$18,328
|
1,000,000 | 1,000 | 480,672 | — | 481,672 | |||||||||||||||
|
Reclassification
of amounts due Wits Basin for start-up and development costs to additional
paid in capital
|
— | — | 3,867,872 | — | 3,867,872 | |||||||||||||||
|
Issuance
of 1,630,000 shares of common stock and warrants in private placement
October through December 2009 at $0.50 per unit
|
1,630,000 | 1,630 | 813,370 | — | 815,000 | |||||||||||||||
|
Net
loss
|
— | — | — | (1,806,028 | ) | (1,806,028 | ) | |||||||||||||
|
BALANCE,
December 31, 2009
|
22,840,649 | $ | 22,841 | $ | 5,141,714 | $ | (6,700,800 | ) | $ | (1,536,245 | ) | |||||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
(1) The
Hunter Bates and Gregory Gold audited balance sheets, statements of operations
and cash flows were retrospectively adjusted in connection with the reverse
acquisition which took place on September 29, 2009. See Note 3 – “Retrospective
Adjustment for the December 31, 2008 Financial Statements” for further
information.
F-5
STANDARD
GOLD, INC.
(AN
EXPLORATION STAGE COMPANY)
|
December 31,
|
September 28,
2004
(inception) to
December 31,
|
|||||||||||
|
2009
|
2008
(1)
|
2009
|
||||||||||
|
(retrospectively
adjusted)
|
||||||||||||
|
OPERATING
ACTIVITIES:
|
||||||||||||
|
Net
loss
|
$ | (1,806,028 | ) | $ | (712,528 | ) | $ | (6,700,800 | ) | |||
|
Adjustments
to reconcile net loss to cash flows used in operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
105,723 | 65,142 | 213,181 | |||||||||
|
Amortization
of imputed interest and discounts on long-term debt
|
388,400 | 205,468 | 593,868 | |||||||||
|
Amortization
of debt issuance costs
|
2,507 | — | 2,507 | |||||||||
|
Loss
(gain) on foreign currency
|
916,170 | (1,222,082 | ) | (305,912 | ) | |||||||
|
Loss
on disposal of miscellaneous assets
|
— | 12,362 | 12,362 | |||||||||
|
Issuance
of equity securities by Wits Basin (majority shareholder) for exploration
expenses
|
— | 185,282 | 334,950 | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Prepaid
expenses and deposits
|
— | 20,000 | — | |||||||||
|
Accounts
payable
|
19,173 | 15,113 | 46,101 | |||||||||
|
Accrued
expenses
|
113,670 | 353,894 | 599,035 | |||||||||
|
Net
cash used in operating activities
|
(260,385 | ) | (1,077,349 | ) | (5,204,708 | ) | ||||||
|
INVESTING
ACTIVITIES:
|
||||||||||||
|
Purchases
of equipment
|
— | (28,106 | ) | (143,628 | ) | |||||||
|
Net
cash used in investing activities
|
— | (28,106 | ) | (143,628 | ) | |||||||
|
FINANCING
ACTIVITIES:
|
||||||||||||
|
Payments
on long-term debt
|
(491,106 | ) | — | (491,106 | ) | |||||||
|
Cash
proceeds from issuance of common stock, net
|
1,046,672 | — | 1,046,672 | |||||||||
|
Checks
written in excess of book funds
|
— | (3,425 | ) | — | ||||||||
|
Advances
from Wits Basin (majority shareholder)
|
179,950 | 1,110,535 | 5,269,556 | |||||||||
|
Debt
issuance costs
|
(25,899 | ) | — | (25,899 | ) | |||||||
|
Net
cash provided by financing activities
|
709,617 | 1,107,110 | 5,799,223 | |||||||||
|
INCREASE
IN CASH AND CASH EQUIVALENTS
|
449,232 | 1,655 | 450,887 | |||||||||
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
1,655 | — | — | |||||||||
|
CASH
AND CASH EQUIVALENTS, end of period
|
$ | 450,887 | $ | 1,655 | $ | 450,887 | ||||||
The accompanying notes are an integral
part of these consolidated financial statements.
(1) The
Hunter Bates and Gregory Gold audited balance sheets, statements of operations
and cash flows were retrospectively adjusted in connection with the reverse
acquisition which took place on September 29, 2009. See Note 3 – “Retrospective
Adjustment for the December 31, 2008 Financial Statements” for further
information.
F-6
STANDARD
GOLD, INC.
(AN
EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2009 and
2008
Standard
Gold, Inc. (formally known as Princeton Acquisitions, Inc.) was incorporated in
the State of Colorado on July 10, 1985, as a blind pool or blank check company.
From the date of our incorporation until September 29, 2009, our business model
was to complete a merger with, or acquisition of a private company, partnership
or sole proprietorship without any particular industry or geographical location
preference.
On
September 11, 2009, we entered into a share exchange agreement with Hunter Bates
Mining Corporation, a Minnesota corporation (“Hunter Bates”) and certain of its
shareholders, in which its shareholders would exchange all of their capital
securities into similar capital securities of ours. Hunter Bates was formed as a
wholly owned subsidiary of Wits Basin Precious Minerals Inc. (a Minnesota
corporation and public reporting company quoted on the Over-the-Counter Bulletin
Board under the symbol “WITM”) (“Wits Basin”) to acquire the prior producing
gold mine properties located in Central City, Colorado, known as the
“Bates-Hunter Mine.” We consummated the share exchange with all of the Hunter
Bates shareholders on September 29, 2009 (the “Share Exchange”).
Accordingly,
the Share Exchange represented a change in control and Hunter Bates became a
wholly owned subsidiary of ours. For accounting purposes, the Share Exchange has
been accounted for as a reverse acquisition with Hunter Bates as the accounting
acquirer (legal acquiree) and Standard Gold as the accounting acquiree (legal
acquirer). Upon effectiveness of the Share Exchange, we adopted the
business model of Hunter Bates and as such have become a stand-alone minerals
exploration and development company with a focus on U.S. gold
projects.
Throughout
this Annual Report, Standard Gold, Inc. and our wholly owned subsidiary Hunter
Bates and its wholly owned subsidiary Gregory Gold Producers, Inc., a Colorado
corporation (“Gregory Gold”) will be referred collectively to as “we,” “us,”
“our,” “Standard Gold” or the “Company” and the historical audited balance
sheets, statements of operations and cash flows of Hunter Bates and Gregory Gold
as of December 31, 2009 and 2008 have been retrospectively combined and adjusted
for the merger of these commonly controlled entities that occurred prior to the
Share Exchange. Gregory Gold was a wholly owned subsidiary of Wits Basin until
September 3, 2009 (at which time Wits Basin contributed all of its equity
interest in Gregory Gold to Hunter Bates, thereby making Gregory Gold a wholly
owned subsidiary of Hunter Bates). Wits Basin utilized Gregory Gold as an
oversight management company for the exploration activities conducted at the
Bates-Hunter Mine.
Effective
with the Share Exchange, the remaining net liabilities of Standard Gold were $0.
Furthermore, we have adopted the December 31 fiscal year end of Hunter
Bates.
On June
12, 2008, Hunter Bates completed the acquisition of the Bates-Hunter Mine, which
included real property, mining claims, permits and equipment. The purchase was
financed through a limited recourse promissory note of Hunter Bates payable to
Mr. George Otten (on behalf of all of the Sellers) in the principal amount of
Cdn$6,750,000 and Wits Basin issued 3,620,000 shares of its common stock.
Through August of 2008, approximately 12,000 feet of surface drilling had been
accomplished, but no further exploration activities will be conducted at the
Bates-Hunter Mine properties until such time as we have sufficient
funds.
As of
December 31, 2009, we possess only a few pieces of equipment and we employ
insufficient numbers of personnel necessary to actually explore and/or mine for
minerals and therefore, we are substantially dependent on the third party
contractors we engage to perform such operations. As of the date of this Annual
Report, we do not claim to have any mineral reserves at the Bates-Hunter
Mine.
F-7
Going
Concern
The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
assuming we will continue as a going concern, which contemplates the realization
of assets and satisfaction of liabilities in the normal course of
business. For the year ended December 31, 2009, we incurred losses from
operations of $1,806,028. At December 31, 2009, we had an accumulated deficit of
$6,700,800 and a working capital deficit of $852,080. Our ability to continue as
a going concern is dependent on our ability to raise the required additional
capital or debt financing to meet short and long-term operating requirements.
During the fourth quarter of 2009, we raised aggregate gross proceeds of
$815,000 from the sale of common stock and warrants to Wits Basin pursuant to a
private placement. We believe that future private placements of equity capital
and debt financing are needed to fund our long-term operating requirements. We
may also encounter business endeavors that require significant cash commitments
or unanticipated problems or expenses that could result in a requirement for
additional cash. If we raise additional funds through the issuance of
equity or convertible debt securities, the percentage ownership of our current
shareholders could be reduced, and such securities might have rights,
preferences or privileges senior to our common stock. Additional financing
may not be available upon acceptable terms, or at all. If adequate funds
are not available or are not available on acceptable terms, we may not be able
to take advantage of prospective business endeavors or opportunities, which
could significantly and materially restrict our operations. We are continuing to
pursue external financing alternatives to improve our working capital position.
If we are unable to obtain the necessary capital, we may have to cease
operations.
Principles of
Consolidation
The
consolidated financial statements include the accounts of Standard Gold, Inc.,
and our wholly owned subsidiary Hunter Bates Mining Corporation, a Minnesota
corporation (and its wholly owned subsidiary Gregory Gold Producers, Inc). All
significant intercompany transactions and balances have been eliminated in
consolidation.
Foreign
Currencies
All
dollar amounts expressed in this Annual Report are in US Dollars (“$”), unless
specifically noted, as certain transactions are denominated in the Canadian
Dollar (“Cdn$”).
Cash and Cash
Equivalents
We
include as cash equivalents: (a) certificates of deposit, and (b) all other
investments with maturities of three months or less, which are readily
convertible into known amounts of cash. We maintain our cash in high-quality
financial institutions. The balances, at times, may exceed federally insured
limits.
Property and
Equipment
Property
and equipment are recorded at cost and depreciated using the straight-line
method over estimated useful lives as follows:
|
Years
|
|
|
Buildings
|
20
|
|
Equipment
|
2-7
|
F-8
Maintenance
and repairs are charged to expense as incurred; major renewals and betterments
are capitalized. As items of property or equipment are sold or retired, the
related cost and accumulated depreciation are removed from the accounts and any
gain or loss is included in operating income.
Mineral
Properties
Mineral
property acquisition costs are recorded at cost and are deferred until the
viability of the property is determined. No properties have reached the
development stage at this time. Exploration, mineral property evaluation, option
payments, related acquisition costs for mineral properties acquired under an
option agreement, general overhead, administrative and holding costs to maintain
a property on a care and maintenance basis are expensed in the period they are
incurred. When reserves are determined for a property and a bankable feasibility
study is completed, subsequent exploration and development costs on the property
would be capitalized. If a project were to be put into production, capitalized
costs would be depleted on the unit of production basis.
Management
reviews the net carrying value of each mineral property as changes may
materialize with a property or at a minimum, on an annual basis. Where
information and conditions suggest impairment, estimated future net cash flows
from each property are calculated using estimated future prices, proven and
probable reserves and value beyond proven and probable reserves, and operating,
capital and reclamation costs on an undiscounted basis. If it is determined that
the future cash flows are less than the carrying value, a write-down to the
estimated fair value is made with a charge to loss for the period. Where
estimates of future net cash flows are not available and where other conditions
suggest impairment, management assesses if the carrying value can be
recovered.
Management's
estimates of gold prices, recoverable reserves, probable outcomes, operating
capital and reclamation costs are subject to risks and uncertainties that may
affect the recoverability of mineral property costs.
Although
the Company has taken steps to verify title to mineral properties in which it
has an interest, these procedures do not guarantee the Company's title. Such
properties may be subject to prior undetected agreements or transfers and title
may be affected by such defects.
Long-Lived
Assets
We will
periodically evaluate the carrying value of long-lived assets to be held and
used, including but not limited to, mineral properties, capital assets and
intangible assets, when events and circumstances warrant such a review.
The carrying value of a long-lived asset is considered impaired when the
anticipated undiscounted cash flow from such asset is separately identifiable
and is less than its carrying value. In that event, a loss is recognized
based on the amount by which the carrying value exceeds the fair value of the
long-lived asset. Fair value is determined primarily using the anticipated cash
flows discounted at a rate commensurate with the risk involved. Losses on
long-lived assets to be disposed of are determined in a similar manner, except
that fair values are reduced for the cost to dispose. There were no impairment
charges during the years ended December 31, 2009 and 2008.
Segment
Reporting
We have a
single operating segment of minerals exploration.
Revenue Recognition and
Deferred Revenue
As of
December 31, 2009, the Bates-Hunter Mine properties have not provided any
revenues and we do not expect them to generate revenues for the foreseeable
future.
F-9
Use of
Estimates
Preparing
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Off Balance Sheet
Arrangements
As of
December 31, 2009, we did not have any off-balance sheet activities (including
the use of structured finance or special purpose entities) or any trading
activities in non-exchange traded commodity contracts that have a current or
future effect on our financial condition, changes in the financial condition,
revenues or expenses, results of operation, liquidity, capital expenditures or
capital resources that are material to our investors.
Financial
Instruments
The
carrying amounts for all financial instruments approximates fair value. The
carrying amounts for cash and cash equivalents, accounts payable and accrued
liabilities approximated fair value because of the short maturity of these
instruments. The fair value of short-term debt approximated the carrying amounts
based upon our expected borrowing rate for debt with similar remaining
maturities and comparable risk. The fair value of long-term debt was
assumed to approximate the carrying amount as most of the debt was incurred
recently.
Net Loss per Common
Share
Basic net
loss per common share is computed by dividing net loss applicable to common
shareholders by the weighted average number of common shares outstanding during
the periods presented. Diluted net loss per common share is determined
using the weighted average number of common shares outstanding during the
periods presented, adjusted for the dilutive effect of common stock equivalents,
consisting of shares that might be issued upon exercise of options, warrants and
conversion of convertible debt. In periods where losses are reported, the
weighted average number of common shares outstanding excludes common stock
equivalents, because their inclusion would be anti-dilutive.
Income
Taxes
Income
taxes are accounted for based upon an asset and liability approach.
Accordingly, deferred tax assets and liabilities arise from the difference
between the tax basis of an asset or liability and its reported amount in the
financial statements. Deferred tax amounts are determined using the tax
rates expected to be in effect when the taxes will actually be paid or refunds
received, as provided under currently enacted tax law. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense or benefit is the tax
payable or refundable, respectively, for the period plus or minus the change in
deferred tax assets and liabilities during the period.
Accounting
guidance requires the recognition of a financial statement benefit of a tax
position only after determining that the relevant tax authority would more
likely than not sustain the position following an audit. For tax positions
meeting the more-likely-than-not threshold, the amount recognized in the
financial statements is the largest benefit that has a greater than fifty
percent likelihood of being realized upon ultimate settlement with the relevant
tax authority. The Company believes its income tax filing positions and
deductions will be sustained upon examination and accordingly, no reserves, or
related accruals for interest and penalties has been recorded at December 31,
2009 and 2008.
The
Company is included in the consolidated federal income tax return of Wits Basin.
The tax provision included in the accompanying financial statements is
calculated as if the Company filed separate federal and state income tax
returns. Deferred taxes are provided on temporary differences between book and
tax basis of assets and liabilities which will have a future impact on taxable
income. The Company has recorded a full valuation allowance against the net
deferred tax asset due to the uncertainty of realizing the related
benefits.
F-10
Recent Accounting
Pronouncements
In June
2009, the Financial Accounting Standards Board (“FASB”) issued authoritative
guidance codifying generally accepted accounting principles in the United States
(“GAAP”). While the guidance was not intended to change GAAP, it did
change the way the Company references these accounting principles in the Notes
to the Consolidated Financial Statements. This guidance was effective for
interim and annual reporting periods ending after September 15, 2009. The
Company’s adoption of this authoritative guidance as of September 30, 2009
changed how it references GAAP in its disclosures.
In June
2009, the FASB issued authoritative guidance that eliminates the quantitative
approach previously required for determining the primary beneficiary of a
variable interest entity and requires on-going qualitative reassessments of
whether an enterprise is the primary beneficiary of a variable interest
entity. This guidance is effective for fiscal years beginning after
November 15, 2009. The Company does not expect the adoption of this
authoritative guidance to have any current impact on the consolidated financial
statements.
NOTE 3
–
RETROSPECTIVE ADJUSTMENT FOR
THE DECEMBER 31, 2008 FINANCIAL STATEMENTS
The
consummation of the Share Exchange on September 29, 2009 represented a change in
control and Hunter Bates became a wholly owned subsidiary of ours. For
accounting purposes, the Share Exchange has been accounted for as a reverse
acquisition with Hunter Bates as the accounting acquirer (legal acquiree) and
Standard Gold as the accounting acquiree (legal acquirer). Upon
effectiveness of the Share Exchange, we adopted the business model of Hunter
Bates and their fiscal year end of December 31. The financial statements
included in this Annual Report are that of Hunter Bates and its wholly owned
subsidiary Gregory Gold. The following table combines the December 31, 2008
audited balance sheets, statements of operations and cash flows of Hunter Bates
and Gregory Gold due to the merger of Hunter Bates and Gregory Gold on September
9, 2009 and includes the adjustments related to the reverse acquisition with
Standard Gold on September 29, 2009.
F-11
Balance
Sheets
|
Hunter
Bates
|
Gregory
Gold
|
Retrospective
|
Consolidated
December 31,
|
|||||||||||||
|
2008
(3)
|
2008
|
Adjustments
|
2008
|
|||||||||||||
|
Assets
|
||||||||||||||||
|
Current
assets:
|
||||||||||||||||
|
Cash
|
$ | — | $ | 1,655 | $ | — | $ | 1,655 | ||||||||
|
Property,
plant and equipment, net
|
1,976,121 | 71,101 | — | 2,047,222 | ||||||||||||
|
Mineral
properties
|
5,255,635 | — | — | 5,255,635 | ||||||||||||
|
Total
Assets
|
$ | 7,231,756 | $ | 72,756 | $ | — | $ | 7,304,512 | ||||||||
|
Liabilities
and Shareholders’ Equity (Deficit)
|
||||||||||||||||
|
Current
liabilities:
|
||||||||||||||||
|
Current
portion of long-term note
|
$ | 204,248 | $ | — | $ | — | $ | 204,248 | ||||||||
|
Accounts
payable
|
— | 26,928 | — | 26,928 | ||||||||||||
|
Due
to Wits Basin Precious Minerals
|
815,288 | 5,424,555 | — | 6,239,843 | ||||||||||||
|
Other
accrued expenses
|
319,103 | 473,762 | — | 792,865 | ||||||||||||
|
Total
current liabilities
|
1,338,639 | 5,925,245 | — | 7,263,884 | ||||||||||||
|
Deferred
tax liability
|
431,000 | — | (431,000 | )(1) | — | |||||||||||
|
Long-term
notes payable, net
|
4,935,389 | — | — | 4,935,389 | ||||||||||||
|
Total
liabilities
|
6,705,028 | 5,925,245 | (431,000 | ) | 12,199,273 | |||||||||||
|
Shareholders’
equity (deficit):
|
||||||||||||||||
|
Common
stock
|
10 | 1 | 18,489 | (2) | 18,500 | |||||||||||
|
Additional
paid-in capital
|
— | — | (18,489 | )(2) | (18,489 | ) | ||||||||||
|
Retained
earnings/accumulated deficit
|
526,718 | (5,852,490 | ) | 431,000 | (1) | (4,894,772 | ) | |||||||||
|
Total
shareholders’ equity (deficit)
|
526,728 | (5,852,489 | ) | 431,000 | (4,894,761 | ) | ||||||||||
|
Total
Liabilities and Shareholders’ Equity (Deficit)
|
$ | 7,231,756 | $ | 72,756 | $ | — | $ | 7,304,512 | ||||||||
Statements of
Operations
|
Hunter
Bates
|
Gregory
Gold
|
Retrospective
|
Consolidated
December 31,
|
|||||||||||||
|
2008
(3)
|
2008
|
Adjustments
|
2008
|
|||||||||||||
|
Revenues
|
$ | — | $ | — | $ | — | $ | — | ||||||||
|
Operating
expenses:
|
— | |||||||||||||||
|
General
and administrative
|
— | 78,445 | — | 78,445 | ||||||||||||
|
Exploration
expenses
|
11,603 | 1,561,385 | — | 1,572,988 | ||||||||||||
|
Depreciation
and amortization
|
47,293 | 17,849 | — | 65,142 | ||||||||||||
|
Loss
on disposal of assets
|
— | 12,362 | — | 12,362 | ||||||||||||
|
Total
operating expenses
|
58,896 | 1,670,041 | — | 1,728,937 | ||||||||||||
|
Loss
from operations
|
(58,896 | ) | (1,670,041 | ) | — | (1,728,937 | ) | |||||||||
|
Other
income (expense):
|
||||||||||||||||
|
Other
income
|
— | 628 | — | 628 | ||||||||||||
|
Interest
expense
|
(205,468 | ) | (833 | ) | — | (206,301 | ) | |||||||||
|
Foreign
currency gains (loss)
|
1,222,082 | — | — | 1,222,082 | ||||||||||||
|
Total
other income (expense)
|
1,016,614 | (205 | ) | — | 1,016,409 | |||||||||||
|
Income
(loss) from operations before income taxes
|
957,718 | (1,670,246 | ) | — | (712,528 | ) | ||||||||||
|
Income
tax provision
|
(431,000 | ) | — | 431,000 | (2) | — | ||||||||||
|
Net
loss
|
$ | 526,718 | $ | (1,670,246 | ) | $ | 431,000 | $ | (712,528 | ) | ||||||
F-12
Statements of Cash
Flows
|
Hunter
Bates
|
Gregory
Gold
|
Retrospective
|
Consolidated
December 31,
|
|||||||||||||
|
2008
(3)
|
2008
|
Adjustments
|
2008
|
|||||||||||||
|
OPERATING
ACTIVITIES:
|
||||||||||||||||
|
Net
income (loss)
|
$ | 526,718 | $ | (1,670,246 | ) | $ | 431,000 | (1) | $ | (712,528 | ) | |||||
|
Adjustments
to reconcile net loss to cash flows used in operating
activities:
|
||||||||||||||||
|
Depreciation
and amortization
|
47,293 | 17,849 | — | 65,142 | ||||||||||||
|
Amortization
of imputed interest and discounts on long-term debt
|
205,468 | — | — | 205,468 | ||||||||||||
|
Loss
(gain) on foreign currency
|
(1,222,082 | ) | — | — | (1,222,082 | ) | ||||||||||
|
Loss
on disposal of miscellaneous assets
|
— | 12,362 | — | 12,362 | ||||||||||||
|
Issuance
of equity securities by Wits Basin (majority shareholder) for exploration
expenses
|
— | 185,282 | — | 185,282 | ||||||||||||
|
Deferred
taxes
|
431,000 | — | (431,000 | )(1) | — | |||||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||||||
|
Prepaid
expenses and deposits
|
— | 20,000 | — | 20,000 | ||||||||||||
|
Accounts
payable
|
— | 15,113 | — | 15,113 | ||||||||||||
|
Accrued
expenses
|
11,603 | 342,291 | — | 353,894 | ||||||||||||
|
Net
cash used in operating activities
|
— | (1,077,349 | ) | — | (1,077,349 | ) | ||||||||||
|
INVESTING
ACTIVITIES:
|
||||||||||||||||
|
Purchases
of equipment
|
— | (28,106 | ) | — | (28,106 | ) | ||||||||||
|
Net
cash used in investing activities
|
— | (28,106 | ) | — | (28,106 | ) | ||||||||||
|
FINANCING
ACTIVITIES:
|
||||||||||||||||
|
Checks
written in excess of book funds
|
— | (3,425 | ) | — | (3,425 | ) | ||||||||||
|
Advances
from Wits Basin (majority shareholder)
|
— | 1,110,535 | — | 1,110,535 | ||||||||||||
|
Net
cash provided by financing activities
|
— | 1,107,110 | — | 1,107,110 | ||||||||||||
|
INCREASE
IN CASH AND CASH EQUIVALENTS
|
— | 1,655 | — | 1,655 | ||||||||||||
|
CASH
AND CASH EQUIVALENTS, beginning of period
|
— | — | — | — | ||||||||||||
|
CASH
AND CASH EQUIVALENTS, end of period
|
— | 1,655 | — | $ | 1,655 | |||||||||||
(1)
Adjustment required to offset the deferred income tax liability of Hunter Bates
with the deferred tax assets of Gregory Gold, which were previously offset by a
full valuation allowance, now that the two entities are combined. The merger
prior to the Share Exchange was treated as a tax free exchange.
(2)
Retrospective adjustment for the 18,500,000 shares received by the Hunter Bates
shareholders in connection with the Share Exchange.
(3) From
April 21, 2008 inception.
On June
12, 2008, Wits Basin entered into a fifth amendment to that certain Asset
Purchase Agreement dated September 20, 2006 by and among Wits Basin and the
Sellers (Hunter Gold Mining Corp, a British Columbia corporation, Hunter Gold
Mining Inc., a Colorado corporation, George E. Otten, a resident of Colorado and
Central City Consolidated, Corp. d/b/a Central City Consolidated Mining Co., a
Colorado corporation) to, among other changes, reflect the assignment by Wits
Basin of its rights in the Asset Purchase Agreement to Hunter
Bates.
F-13
Pursuant
to the terms of the Asset Purchase Agreement, Wits Basin and Hunter Bates
completed the acquisition of the Bates-Hunter Mine properties, which included
land, buildings, equipment, mining claims and permits, financed through a
limited recourse promissory note of Hunter Bates payable to Mr. Otten (on behalf
of all of the Sellers) in the principal amount of Cdn$6,750,000 ($6,736,785 US
as of June 12, 2008) and Wits Basin issued 3,620,000 shares of its common stock
with a fair value of $742,100. We also incurred acquisition costs of $380,698.
Additionally, the following net smelter royalties were granted: (i) a two
percent net smelter return royalty on all future production, with no limit and
(ii) a one percent net smelter return royalty (up to a maximum payment of
$1,500,000).
A summary
of the total purchase price is as follows:
|
Promissory
note payable
|
$ | 6,736,785 | ||
|
Common
stock issued
|
742,100 | |||
|
Acquisition
costs
|
380,698 | |||
|
Less
discounts on the note
|
(580,534 | ) | ||
|
Total
purchase price
|
$ | 7,279,049 |
The
following table summarizes the initial allocation of the purchase price, in US
Dollars, of the assets acquired in the transaction along with the subsequent
changes to the underlying assets based on a more formal assessment of fair
market value. These changes had no material effect on depreciation. The US
Dollar values reflect a discount ($580,534) relating to the Otten recourse note
being non-interest bearing until January 1, 2010.
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Land
|
$ | 329,280 | $ | 610,423 | ||||
|
Buildings
|
1,206,954 | 1,330,902 | ||||||
|
Equipment
|
82,089 | 82,089 | ||||||
|
Mining
claims
|
5,657,383 | 5,252,292 | ||||||
|
Mining
permits
|
3,343 | 3,343 | ||||||
|
Total
purchase price
|
$ | 7,279,049 | $ | 7,279,049 | ||||
Prior to
our acquisition of the Bates-Hunter Mine in June 2008, Gregory Gold made
purchases of various pieces of equipment necessary to operate and de-water the
Bates-Hunter Mine property. After the acquisition, we now have additional assets
of land, buildings and other additional equipment all related to the
Bates-Hunter Mine. Depreciation on allowable assets is calculated on a
straight-line method over the estimated useful life, presently ranging from two
to twenty years. Components of our property, plant and equipment are as
follows:
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Land
|
$ | 329,280 | $ | 610,423 | ||||
|
Buildings
|
1,206,954 | 1,330,902 | ||||||
|
Equipment
|
199,694 | 199,694 | ||||||
|
Less
accumulated depreciation
|
(199,520 | ) | (93,797 | ) | ||||
| $ | 1,536,408 | $ | 2,047,222 | |||||
F-14
As noted
in Note 4, a more formal valuation assessment was done with the Hunter-Bates
Mine purchase in 2009. Our initial allocation of the purchase price to the
mining claims and permits acquired in the Bates-Hunter Mine transaction has been
adjusted accordingly to the final valuation study. Since the purchase, we have
not commenced any mining operations due to the lack of funding and therefore, we
have not recorded any amortization expense nor have we determined that any
impairment has occurred for the period ended December 31, 2009. Components of
our mineral properties and development costs are as follows:
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Mining
claims
(1)
|
$ | 5,657,383 | $ | 5,252,292 | ||||
|
Mining
permits
(2)
|
3,343 | 3,343 | ||||||
| $ | 5,660,726 | $ | 5,255,635 | |||||
|
|
(1)
|
We
acquired some surface rights and some mining rights to 22 parcels located
in Gilpin County, Colorado.
|
|
|
(2)
|
We
acquired various mining, special use, water discharge, stormwater and
drilling permits, all of which require renewal at various
times.
|
We
recorded debt issuance costs with respect to legal services incurred relating to
the Cabo convertible promissory note issued in 2009 (see Note 9 – Convertible
Note Payable). Debt issuance costs are being amortized on a straight-line basis
(which approximates the effective interest method) over the term of the
corresponding debt.
The
following table summarizes the amortization of debt issuance costs:
|
December 31,
|
||||
|
2009
|
||||
|
Debt
issuance costs, net, beginning of period
|
$ | — | ||
|
Add:
additional debt issuance costs
|
25,899 | |||
|
Less:
amortization of debt issuance costs
|
(2,507 | ) | ||
|
Debt
issuance costs, net, end of period
|
$ | 23,392 | ||
Future
annual amortization is scheduled to be as follows for the years ending December
31:
|
2010
|
$ | 10,026 | ||
|
2011
|
10,026 | |||
|
2012
|
3,340 | |||
| $ | 23,392 |
The
Company has recorded a number of expenses primarily relating to the acquisition
of the Bates-Hunter Mine. The following table summarizes the ending balances of
the accrued expenses:
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Miscellaneous
|
$ | 23,130 | $ | 22,172 | ||||
|
Interest
|
71,630 | — | ||||||
|
Bates-Hunter
Mine
(1)
|
360,185 | 770,693 | ||||||
| $ | 454,945 | $ | 792,865 | |||||
(1) The
decrease from December 31, 2008 to December 31, 2009 is due primarily to the
issuance of a convertible debenture to Cabo Drilling (America) Inc., in
satisfaction of an outstanding payable totaling $451,590.
F-15
On April
28, 2009, Wits Basin entered into a convertible debenture with Cabo Drilling
(America) Inc., a Washington corporation formerly known as Advanced Drilling,
Inc (“Cabo”), pursuant to which we issued to Cabo a 12% Convertible Debenture
dated April 27, 2009 (the “Debenture”), in the principal amount of $511,590. As
this obligation stems from work completed on and around the Bates-Hunter Mine
property and is secured by our property (as referenced below) for accounting
purposes it is reflected on our financial statements. The Debenture has a
maturity date of April 27, 2012, with scheduled payments of $150,000 due each
anniversary with a final payment due of the remaining balance on the third
anniversary. The Debenture is convertible at the option of the holder at any
time into shares of Wits Basin common stock at a conversion price of $0.20 per
share, subject to standard anti-dilutive adjustments. Any future conversion of
this Debenture into Wits Basin common stock would be recorded as a reclass to
“Due to Wits Basin” on our books. The Debenture was issued to Cabo in
satisfaction of an outstanding payable totaling $451,590 for drilling services
performed relating to the Bates-Hunter Mine property. The difference between the
face amount of the Debenture and the outstanding payable totaling $60,000 is
treated as a discount to the debt and is being amortized to interest expense
over the 3-year term of the Debenture.
Hunter
Bates has guaranteed Wits Basin’s obligations under the Debenture, and further
entered into that certain Deed of Trust to Public Trustee, Mortgage, Security
Agreement, Assignment of Production and Proceeds, Financing Statement and
Fixture Filing (the “Cabo Deed of Trust”) to provide security for the
obligations under the Debenture.
Summary
The
following table summarizes the convertible note balance:
|
Balance
at December 31, 2008
|
$ | — | ||
|
Add:
conversion of accrued expenses and additional interest
charge
|
451,590 | |||
|
Add:
amortization of debt discount
|
13,333 | |||
|
Less:
principal payments
|
— | |||
|
Balance
|
464,923 | |||
|
Less:
current portion
|
(150,000 | ) | ||
|
Balance
at December 31, 2009
|
$ | 314,923 |
As of
December 31, 2009, the outstanding principal balance is $511,590 with accrued
interest of $41,712.
Long-term limited recourse
promissory note – Otten
On June
12, 2008, Hunter Bates completed the acquisition of the Bates-Hunter Mine
properties, which included land, buildings, equipment, mining claims and
permits, financed through a limited recourse promissory note of Hunter Bates
payable to Mr. George Otten (on behalf of all of the Sellers) in the principal
amount of Cdn$6,750,000 (the “Otten Note”). The Otten Note required an initial
payment of Cdn$250,000 due by December 1, 2008, which was subsequently extended
multiple times. On June 1, 2009, the parties entered into a standstill letter
agreement, whereby the Sellers agreed they would not, prior to August 1, 2009,
take any enforcement actions or exercise any rights of default under the Otten
Note and extend the initial payment of Cdn$250,000 to July 31, 2009. In
consideration for entering into the standstill agreement, two principal payments
of Cdn$12,500 were made in June and July 2009. By November 13, 2009, the
complete Cdn$250,000 payment was recorded against the Otten Note. As of December
31, 2009, the outstanding principal balance is Cdn$6,500,000 (approximately
$6,189,768 US).
F-16
Commencing
on April 1, 2010, a quarterly installment of accrued interest plus a Production
Revenue Payment (as defined below) becomes payable. The Otten Note is
interest-free until January 1, 2010, and from such date shall bear interest at a
rate of 6% per annum, with a maturity date of December 31, 2015. The Otten
Note balance reflected a discount (valued at $580,534 and fully amortized to
interest expense as of December 31, 2009) relating to the recourse note being
non-interest bearing until the first payment in 2010. Hunter Bates’ payment
obligations under the Otten Note is secured by a deed of trust relating to all
of the property acquired in favor of Gilpin County Public Trustee for the
benefit of Mr. Otten. Hunter Bates is required to make quarterly principal
repayments (each a “Production Revenue Payment”) beginning April 1, 2010, which
payment(s) shall equal:
|
|
1.
|
For
all calendar quarters March 31, 2010 to December 31, 2012, 75% of the
profit realized by Hunter Bates for the immediately preceding calendar
quarter, and
|
|
|
2.
|
For
calendar quarters ending after December 31, 2012, the greater of (a) 75%
of the profit realized by Hunter Bates for the relevant calendar quarter
and (b) Cdn$300,000.
|
Furthermore,
if Hunter Bates has not been obligated to make a Production Revenue Payment by
December 31, 2012, then beginning on April 1, 2013 and continuing on each
payment date until Hunter Bates has become obligated to make a Production
Revenue Payment, Hunter Bates shall make principal repayments in the amount of
Cdn$550,000. Upon Hunter Bates becoming obligated to make a Production Revenue
Payment at anytime after April 1, 2013, Hunter Bates shall make Production
Revenue Payments in accordance with #2 above.
The
following table summarizes the Otten long-term limited recourse promissory note
in US Dollars:
|
Otten
limited recourse note converted into US Dollar equivalent
|
$ | 6,736,785 | ||
|
Less:
initial discount for imputed interest of the Otten limited recourse
note
|
(580,534 | ) | ||
|
Less:
unrealized foreign currency gain from the Otten limited recourse
note
|
(1,222,082 | ) | ||
|
Add:
amortization of imputed interest discount
|
205,468 | |||
|
Balance
at December 31, 2008
|
$ | 5,139,637 | ||
|
Add:
unrealized foreign currency loss from the Otten limited recourse
note
|
916,170 | |||
|
Add:
amortization of original issue discount
|
375,067 | |||
|
Less:
principal payments
|
(241,106 | ) | ||
|
Balance
|
6,189,768 | |||
|
Less:
current portion
|
— | |||
|
Balance
at December 31, 2009
|
$ | 6,189,768 |
Long-term related party
promissory note – Wits Basin
In August
2009, Hunter Bates issued a note payable in favor of Wits Basin (at which time
held 100% of the equity interest in Hunter Bates) in the principal amount of
$2,500,000 (the “Wits Basin Note”) in consideration of various start-up and
developments costs and expenses incurred by Wits Basin on its behalf while
Hunter Bates and Gregory Gold were consolidated, wholly owned subsidiaries of
Wits Basin. The aggregate amount of start-up and developments costs and expenses
incurred by Wits Basin prior to the Share Exchange was $6,367,872 with the
remaining balance of $3,867,872 being credited to additional paid in capital.
The Wits Basin Note is due on December 31, 2013, and calls for quarterly
payments of $150,000. Interest accrues at a rate of 6% compounded per
annum. In the event Hunter Bates generates net revenues in excess of
$2,000,000 during any fiscal year or completes one or more financings in the
aggregate amount of $10,000,000, Hunter Bates’ payment obligations under the
Wits Basin Note will, at the option of Wits Basin, accelerate and become due and
payable.
F-17
On
September 29, 2009, Hunter Bates satisfied an aggregate of $500,000 under the
Wits Basin Note through (i) the issuance of 500,000 shares of its common stock
and warrants to purchase an additional 500,000 shares at an exercise price of
$1.00 (sold at $0.50 per unit with a total value of $250,000) to a creditor of
Wits Basin in satisfaction of certain of Wits Basin’s obligation to such
creditor and (ii) the payment to Wits Basin of $250,000.
As of and
for the year ended December 31, 2009, interest expense of $29,918 has been
charged to operations and is included in accrued expenses.
The
following table summarizes the Wits basin long-term note payable:
|
Balance
at December 31, 2008
|
$ | — | ||
|
Add:
issuance of note
|
2,500,000 | |||
|
Less:
principal payments
|
(500,000 | ) | ||
|
Balance
|
2,000,000 | |||
|
Less:
current portion
|
600,000 | |||
|
Balance
at December 31, 2009
|
$ | 1,400,000 |
Current maturity
summary
For all
long-term debt, the scheduled annual maturities for the years ending December 31
are as follows:
|
2010
|
$ | 600,000 | ||
|
2011
|
600,000 | |||
|
2012
|
600,000 | |||
|
2013
|
2,295,000 | |||
|
2014
|
2,095,000 | |||
|
Thereafter
|
1,999,768 | |||
|
Total
|
$ | 8,189,768 |
Common Stock
Issuances
During
fiscal 2008, we did not issue any shares of our unregistered common
stock.
During
fiscal 2009: (i) immediately prior to the completion of the Share Exchange on
September 29, 2009, Hunter Bates completed a private placement offering to
accredited investors (as that term is defined under Regulation D under the
Securities Act of 1933, as amended (the “Securities Act”)) of 1,000,000 units,
each unit consisting of one share of Hunter Bates common stock and one warrant
to purchase a share of Hunter Bates common stock at an exercise price of $1.00,
at a per unit price of $0.50. Hunter Bates received cash proceeds of $250,000
(net of offering costs totaling $18,328) and used the proceeds to make a payment
on the $2,500,000 Wits Basin Note and (ii) we issued an aggregate 1,630,000
shares of our unregistered common stock through December 2009 in a unit private
placement offering with Wits Basin at $0.50 per unit, each unit consisting of
one share of our common stock, par value $0.001 per share, and one five-year
warrant to purchase a share of common stock at an exercise price of $1.00 per
share, resulting in net proceeds of $815,000.
Stock
Options
As of
December 31, 2009, we have no stock options outstanding nor do we have a stock
option plan in place.
F-18
Stock
Warrants
In
connection with the September 29, 2009 private placement, the Company issued
stock warrants to purchase up to 1,500,000 shares of the Company’s common stock
at an exercise price of $0.01 per share to two accredited investors in
consideration of consulting services and finders fees in connection with the
private placement.
The
following table summarizes information about the Company’s stock warrants
outstanding:
|
Number
|
Weighted
Average
Exercise
Price
|
Range
of
Exercise
Price
|
Weighted
Remaining
Contractual
Life
|
||||||||||
|
Outstanding
at December 31, 2008
|
— | $ | — | $ | — | ||||||||
|
Granted
|
4,130,000 | 0.64 | 0.01 – 1.00 | ||||||||||
|
Cancelled
or expired
|
— | — | — | ||||||||||
|
Exercised
|
— | — | — | ||||||||||
|
Outstanding
at December 31, 2009
|
4,130,000 | $ | — | $ | 0.01 – 1.00 |
4.8
years
|
|||||||
|
Warrants
exercisable at December 31, 2009
|
4,130,000 | $ | 0.64 | $ | 0.01 – 1.00 | ||||||||
Legal
Matters
The
Company is subject to legal proceedings in the normal course of business.
Management believes these proceedings will not have a material adverse effect on
the financial statements.
Guarantee
and Pledged Collateral of Wits Basin
The
Hunter-Bates Mine, including various equipment connected with the mine, has been
pledged as collateral for various debts of Wits Basin, our majority shareholder.
The total liabilities outstanding on Wits Basin financial statements that has
the Hunter-Bates Mine as collateral is $9,012,862 at December 31,
2009.
In
addition to the note payable discussed in Note 10, Wits Basin provides certain
general and administrative services (primarily management salary and office
rent) for the Company. Amounts charged to operations amounted to $54,151 and
$53,997 for the years ended December 31, 2009 and 2008,
respectively.
The
Company estimates that at December 31, 2009 it had cumulative net operating loss
carryforwards for tax purposes of approximately $973,000 for both federal and
state purposes. These carryforwards, if not used, will begin to expire in 2028.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
F-19
Future
ownership changes could significantly further limit the use of the net operating
loss (NOL).
Significant
components of the Company’s estimated deferred tax assets and liabilities at
December 31:
|
2009
|
2008
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating loss carryforwards
|
$ | 368,000 | $ | 216,000 | ||||
|
Exploration
rights
|
2,004,000 | 1,970,000 | ||||||
|
Foreign
currency gains
|
(113,000 | ) | (452,000 | ) | ||||
|
Other
|
5,000 | — | ||||||
|
Total
deferred tax asset
|
2,264,000 | 1,734,000 | ||||||
|
Valuation
allowance
|
(2,264,000 | ) | (1,734,000 | ) | ||||
| $ | — | $ | — | |||||
The
income tax provision consists of the following for the years ended December
31:
|
2009
|
2008
|
|||||||
|
Current
tax provision
|
$ | — | $ | — | ||||
|
Deferred
tax provision
|
(530,000 | ) | (187,000 | ) | ||||
|
Valuation
allowance
|
530,000 | 187,000 | ||||||
|
Total
income tax provision
|
$ | — | $ | — | ||||
Reconciliation
between the statutory rate and the effective tax rate for the years ended
December 31:
|
2009
|
2008
|
|||||||
|
Federal
statutory tax rate
|
(34.0 | )% | (34.0 | )% | ||||
|
State
taxes, net of federal benefit
|
(3.0 | )% | (3.0 | )% | ||||
|
Permanent
differences
|
7.7 | % | 10.8 | % | ||||
|
Valuation
allowance
|
29.3 | % | 26.2 | % | ||||
|
Effective
tax rate
|
— | — | ||||||
At
December 31, 2009, the Company fully reserved its net deferred tax assets
totaling $2,264,000, recognizing that the Company has incurred losses during the
last several years and there is no assurance that future years will be
profitable.
Basic net
loss per common share is computed by dividing net loss applicable to common
shareholders by the weighted average number of common shares outstanding during
the periods presented. Diluted net loss per common share is determined
using the weighted average number of common shares outstanding during the
periods presented, adjusted for the dilutive effect of common stock equivalents,
consisting of shares that might be issued upon exercise of options, warrants and
conversion of convertible debt. In periods where losses are reported, the
weighted average number of common shares outstanding excludes common stock
equivalents, because their inclusion would be anti-dilutive.
F-20
The
following table provides a reconciliation of the numerators and denominators
used in calculating basic and diluted earnings per share for the years ended
December 31:
|
2009
|
2008
|
|||||||
|
Basic
earnings (loss) per share calculation:
|
||||||||
|
Net
income (loss) to common shareholders
|
$ | (1,806,028 | ) | $ | (712,528 | ) | ||
|
Weighted
average of common shares outstanding
|
19,275,573 | 18,500,000 | ||||||
|
Basic
net earnings (loss) per share
|
$ | (0.09 | ) | $ | (0.04 | ) | ||
|
Diluted
earnings (loss) per share calculation:
|
||||||||
|
Net
income (loss) per common shareholders
|
$ | (1,806,028 | ) | $ | (712,528 | ) | ||
|
Basic
weighted average common shares outstanding
|
19,275,573 | 18,500,000 | ||||||
|
Stock
purchase warrants
|
(1) | (2) | ||||||
|
Diluted
weighted average common shares outstanding
|
19,275,573 | 18,500,000 | ||||||
|
Diluted
net income (loss) per share
|
$ | (0.09 | ) | $ | (0.04 | ) | ||
|
(1)
|
As
of December 31, 2009, we had 4,130,000 shares of common stock issuable
upon the exercise of outstanding warrants. These 4,130,000 shares were
excluded from diluted weighted average outstanding shares amount for
computing the net loss per common share, because the net effect would be
antidilutive for each of the periods
presented.
|
|
(2)
|
As
of December 31, 2008, we had no stock options, warrants or reserved shares
outstanding.
|
|
December 31,
|
September 28,
2004
(inception) to
December 31,
|
|||||||||||
|
2009
|
2008
|
2009
|
||||||||||
|
Supplemental
cash flow information:
|
||||||||||||
|
Cash paid for interest
|
$ | — | $ | 833 | $ | 833 | ||||||
|
Cash paid for income taxes
|
$ | — | $ | — | $ | — | ||||||
|
Disclosure
of non-cash investing and financing activities:
|
||||||||||||
|
Long-term
debt incurred for the purchase of Bates-Hunter Mine
|
$ | — | $ | 6,156,251 | $ | 6,156,251 | ||||||
|
Advances
from Wits Basin incurred for purchase of Bates-Hunter Mine
|
$ | — | $ | 815,298 | $ | 815,298 | ||||||
|
Accrued
expenses incurred in connection with purchase of Bates-Hunter
Mine
|
$ | — | $ | 307,500 | $ | 307,500 | ||||||
|
Offset
to advances from Wits Basin for common stock purchase
|
$ | — | $ | (10 | ) | $ | (10 | ) | ||||
|
Issuance
of common stock in lieu of payment on long-term debt
|
$ | 250,000 | $ | — | $ | 250,000 | ||||||
|
Amounts
due to Wits Basin reclassified as additional paid-in
capital
|
$ | 3,867,872 | $ | — | $ | 3,867,872 | ||||||
|
Amounts
due to Wits Basin converted into a long-term note payable
|
$ | 2,500,000 | $ | — | $ | 2,500,000 | ||||||
|
Accrued
expenses converted into a convertible note payable
|
$ | 451,590 | $ | — | $ | 451,590 | ||||||
F-21
In
January 2010, the Company accepted a subscription from an accredited investor
for the sale of units consisting of 50,000 shares of the Company's common stock
and a five-year warrant to purchase up to 50,000 shares of the Company's common
stock (at an exercise price of $1.00 per share) for the purchase price of $0.50
per unit. The Company received gross proceeds from the sale of $25,000 as
no commissions were paid on the transaction.
On March
22, 2010, our Board approved and adopted the 2010 Stock Option Plan, whereby
3,000,000 shares of the Company’s par value $0.001 common stock are held in
reserve for issuance pursuant to the Plan.
F-22
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security HoldersPart IIItem 5. Market For Registrant S Common Equity, Related Shareholder Matters and Issuer Purchases Of Equity SecuritiesItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9a(t). Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Shareholder MattersItem 13. Certain Relationships, Related Transactions and Director IndependenceItem 14. Principal Accountant Fees and ServicesItem 15. Exhibits and Financial Statement SchedulesItem 8. Consolidated Financial Statements and Supplementary DataNote 1 Nature Of BusinessNote 2 Summary Of Significant Accounting PoliciesNote 3 Retrospective Adjustment For The December 31, 2008 Financial StatementsNote 4 Acquisition Of Bates-hunter MineNote 5 Property, Plant and EquipmentNote 6 Mineral Properties and Development CostsNote 7 Debt Issuance CostsNote 8 Accrued ExpensesNote 9 Convertible Note PayableNote 10 Long-term Notes PayableNote 11 Shareholders EquityNote 12 Commitments and ContingenciesNote 13 Related Party TransactionsNote 14 Income TaxesNote 15 Earnings (loss) Per ShareNote 16 Supplemental Cash Flow InformationNote 17 Subsequent Events